The stock market has seen a massive transformation in the way money has been distributed between technology stocks and commodity stocks in the recent months. Savvy technology investors who have never before invested in commodity stocks have begun to speculate and put their money in this “hot” industry. As a result, commodity stocks have exploded to 52-week highs and dizzying heights. These new highs created instability in the commodity market and a correction was inevitable.
Unfortunately, this recent correction happened at a very inopportune time. Many momentum and inexperienced investors bought commodity stocks at their highs and have since seen a 25 to 50 percent decline in stock prices within the last two weeks. This recent correction was worsened by media panic, a “bubble bursting”, margin calls, and those inexperienced investors who bought at the top.
The difference between the technology “bubble” and this supposed commodity “bubble” is that the technology bubble was not related to fundamental supply and demand. Commodities are needed in today’s expanding global economy and there will not be a surplus anytime soon. Copper, which is my area of expertise, is estimated to have about 3 days of supply in storage. Other commodities are experiencing the same supply constraints and therefore commodity prices should be able to be sustained in the future. While there may still be some short-term volatility in the commodity market due to overreactions by worried investors who are underwater, the commodity market should be healthy and provide solid gains for years to come.
So, which copper stocks should you buy? Personally I like a company called Northern Orion Resources (NTO). NTO has seen a recent pullback in its stock price which has created a very attractive buying opportunity.
NTO is my personal favorite for several reasons. As of May 22, 2006 they are trading at $4.72 per share and are expected to make $.38 per share this year. NTO mines mainly copper and gold and have a new mine coming into production in the coming years called Agua Rica. Agua Rica is projected to have 21.8 billion pounds of copper, 13.3 million ounces of gold, and 1.7 billion pounds of molybdenum. At today’s prices, Agua Rica is worth around $100 billion. Considering NTO currently has a market cap of $700 million, it is definitely an investment worth looking into.
Andrew Nadeau is an experienced investor several years of indepth research in the technology and commodity sectors. If you would like to read more of Andrew's opinions and articles on recent market trends then visit http://www.purestockanalysis.com/index.html or http://www.wbfantasyportfolio.com/index.html .