Mining stocks still look bright for the stock market in 2008

There is nothing that feels as good as being vindicated on an idea. As a former stockbroker I especially like to hear that I got it right. But I realize that my vanity is only a personal joy and mining stocks are the real winners.

I have said in August and September, as well as in other points in this year, that mining stocks were one of the best values in the stock market. While the focus has been on financials the market has run to gold. And with the latest drop in the stock market, some 20% down in a week and 42% for the year at that point, there were few that believed anything was still a buy. And then the market gained nearly 1000 points in a day.

And then the Motley Fool readers jumped on the ride. The MSN Money list of institutional buying and the Motley Fool CAPS both picked as their top 2 leading buy choices:

• Compania de Minas Buenaventura
  
• Agnico-Eagle Mines
  

Is anyone surprised?

Copper ran for a huge 2-day run that was unheralded, the largest mining company in the world BPH gained 3.5%. Vedanta Resources Plc, the biggest copper miner in India, gained 14%.

On Monday Barron’s wrote about Van Eck portfolio manager Joe Foster and his call for the gold market - International Investors Gold Fund.

So it seems that all these sources are looking towards the mining stocks. That means that you can be sure that this is the time for a pause in gains for a bit. I still regard this sector as one of the best purchases in the market. Volatility is not gone, but then again the markets in general are going to experience that.

The 4th Quarter is going to be abysmal. As sales miss projections and earning look to become negative, the need for metal will become attractive again. As the financials continue to seesaw, causing turmoil in other markets, and the Presidential election places a firm vision of the next 4 years precious metals will experience a run similar to that at the end of 2007.

I may be wrong, just as at various points this year I already have been. But the overall outlook has been correct, and I think it will be in the future as well. But only time will tell.

Clues on the Chinese stock market via the Year of the Rat

While most of the Asian markets are taking a breather for the Chinese Lunar New Year, I’ve decided to see what is being said about the ups and downs that have been experience in recent months. As I’ve mentioned previously, there is no shortage of opinions on where Chinese stocks will go, and/or end the year. But there are a few things most everyone will agree with.

The biggest item is that the economy in China is growing and growing fast. Estimates of 10% growth for the year are only slightly off last years pace. China has grown enough that it is now making more investments outside the country than are coming in. Add to that the performances of several major companies (such as BHP Billiton Ltd, Bank of China Ltd, China Eastern, among others) and things look quite cheerful. If you don’t mind the bumps.

Interest rates followed the U.S. and were lowered after the Federal Reserve cut in January to catch up to the recessionary pressure and mortgage crisis. Still the Shanghai Composite Index has been off some 13% year-to-date. Several popular names have taken hits like China Life Insurance, New Oriental Education & Technology, and Shanda Interactive.

Not long ago I noted that Warren Buffet had recommended caution for investments in China. And shortly there after I mentioned a trader that favors China, and the potential of the Olympic Games this year. Now I’ve seen that Motley Fool had an article by Will Frankenhoff, that is looking for buying opportunitiues. That goes along with my cautionary call that recent winter storms and world conditions may be presenting a buying opportunity.

Considering both sides of this equation one mutual fund company has sought to give investors an opportunity to be involved with both sides. For those looking to be long yet unsure which individual Chinese stock to pick there is the UltraChina ProFund. And for those with a more bearish outlook there is the UltraShort China ProFund.

Which is best? Well let’s look at what people born under the year of the Rat are supposed to be like.

“Rat people are born under the sign of charm and aggressiveness. They are expressive and can be talkative sometimes…Rats are self-contained and keep problems to themselves….

The Rat is quick-witted. Most rats get more accomplished in 24 hours than the rest of us do in as many days. They are confident and usually have good instinct…

Unfortunately, as soon as the Rat earns money, he spends it.”

Going by this guide, which I do not profess is the perfect description, you might get this conclusion. February – and the whole year – is a matching of Yin and Yang , and as such the Chinese stock market has visited valleys and peaks. The full extent of exposure to the mortgage crisis will be unknown until April thus exhibiting the need for patience. Growth for the nation is expected to be very aggressive by anyone’s standard and is a mark of hard work. And more than a small amount of money made last year and this will be spent to rebuild and create new infrastructure that was damaged or needed from the ice storms that ravaged the southern parts of the nation thus providing for practicality, responsibility and long term planning.

All in all it sounds like a Rat. So perhaps one thought would be to have patience for the eventual outcomes of this year. The outlook is good for mergers like with China Eastern, and the test of banks investing in insurance companies. And the potential for growth to outpace expectations is high.

You may not believe in the Chinese calendar, but many do. And if that is the way they will be guiding their investments well it may be a hint. So it will be interesting to see how close my rough analysis based on the Rat will turn out to be.

Researching Biotechs to find a cure for recession

Well the biotech sector is starting to get renewed attention. No real surprise as it’s one of the bastions that stock market investors go to when a recession hits. It’s part of the group that gets a boost every time the R-word is mentioned, along with Gold (which is already on a tear).

But recently there has been a few pot shots taken at a few of the industry standards. The big boys are not looking so good, according to some, and that leaves the question of where to go. Some think that the biotech’s that got a boost from the JPMorgan Healthcare Conference this year are where to go. Others are just trying to see what is next.

One place not to go may well be Pfizer. As noted on Motley Fool there are many reasons. One of the most important I feel is the question of the drug pipeline. In the case of Pfizer there really isn’t one. In fact they are running into the problem that is deadly to many successful biotech stocks, patent expiration. Without the protection of a patent, sales inevitably fall precipitously, no matter how big your company is or the nature of the drug.

For Pfizer they will be losing 2 of the biggest drugs in the last 15 years. In fact the most explosive and popular drug in perhaps 2 decades or more will be opening up to generic competition, namely Viagra [the other drug is Lipitor]. If anyone thinks that won’t kick the company in the seat of the pants, then you probably think gold is a sell right now.

Of course Pfizer is not alone, as Genentech is in a similar situation. Though they do have a few new innovations on their aging pipeline that may give them a small boost, or at least cushion the patent exiration blow. So where do you look instead.

Well Adam Feuerstein over at TheStreet.com (I read a lot of the information there too) posed a new outlook that may catch on, if it hasn’t already. His theory basically is that many feel the top names at the JPMorgan conference are the top picks for the year. To that end he is following them.

He’s selected a list of 10 names, some well known others not, that he will watch throughout the year. They are:

Pharmasset
Idenix Pharmaceuticals
Intermune
Allos Therapeutics
Incyte
Isis Pharmaceuticals
Nektar Therapeutics
Viropharma
Seattle Genetics
Biogen Idec

It’s an interesting group. Again the key is always the pipeline. To me that is the beginning and end of any choice of biotech stocks. Strong, growing pipelines are of interest. Lagging pipelines are not.

Will this list prove to be true? Are they a one shot deal? We will see, but the short term of one year is never enough to know. I will tell you one thing though; no matter which biotech’s lead the industry, and whether the industry leads the stock market, as fear of recession and the impact of the mortgage crisis continues to unfold, this will not be the last you hear about this.