How to Analyze Net-Nets Undergoing Change

Someone who reads my articles asked me a question:

Hi again Geoff,

I am very new to net-nets, so I haven't got everything thought out yet about how I view them. Or rather, I have reawakened to them, thanks to you and Oddball Stocks mostly, after being a bit more dismissive of 'lesser' businesses. It seems you use net-nets more as a quantitative screen rather than as making 100% sure the downside protection in the balance sheet is absolutely firesure. I can sympathize with this and the thing about finding stocks that are cheap on more than one metric strikes a chord with me.

I am trying to value a Swedish net-net right now (the only one I could find actually, its name is Empire). The problem is that the business as an ongoing concern is not that easy to value at all. They sold off most of it (and now sit on $25 million in inventory, $35 million in receivables, $55.8 million in cash and $47.9 million in total liabilities. The market cap is about $45 million. No non-current assets. They recently paid out $10.3 million in dividends.

They were the Scandinavian reseller of Sodastream (SODA) but Sodastream bought them out and what remains now is some other rather bland kitchen/household gadget business, some of it in their own brand and some of it as an agent for Babyliss. Basically, they sell toasters, which surely isn't the best of businesses but they have eked out profits in all years except 2009 under the current structure. The company had a wholly different profile before 2004.

Total sales last year were $375.6 million but without Sodastream proforma sales were $101.5 million, with 2-3% EBIT margins in the last two years. The Sodastream business was actually heavily contracting (saturated market with high household penetration) while the other business is growing nicely (21% year over year), and won't have the same problem of saturating markets (toasters, water boilers and shaving appliances are not 'one-off' products in the same way as a gadget which gets a buzz around ! it for a while, at least not in my mind).

Would you ever consider a stock like this or does the lack of operating history in its current form make you put it in the too hard pile immediately? I find that the business as such is far from worth the market cap, obviously, but they could pay out something like $40 million and still have a business worth probably about $15 million to $20 million with significant possibility on the upside, if they can continue to grow profitably. But they won't do so, obviously. They are going to try to expand faster in different ways with the help of the cash.

Would be great to hear some thoughts on this if you have the time...

Regards,

Karl

Have you read "You Can Be a Stock Market Genius?"

It discusses investments that are similar in how you have to analyze them to something like this:

· Spin-offs

· One money-losing division, one money-making division

· Etc.

So, first of all, this is a tough topic. It's often hard to analyze the actual businesses of net-nets. It's much easier to analyze wide-moat companies. And net-nets usually don't fall in that category.

When you add change to the mix it's even harder. Business change of any kind is a really tough part of any investment analysis. And, yes, a net-net that was in a competitive business to start with and now is undergoing a lot of change — that can sometimes be too much to analyze.

As part of a group, you can definitely invest in businesses undergoing change. If you could find 50 companies facing a lot of change — but selling for less than their net current assets — you could have a nice portfolio. Some will blow up entirely. They'll go to zero. But those that recover will pay off handsomely.

Right now, you'd have to be a smaller investor willing to cast a worldwide net to find anything like 50 net-nets where the big problem was business change. For investors in a few countries — Japan, Korea, etc. — there ! are more ! net-nets to pick from. Investors in those countries can keep themselves busy just focusing on net-nets.

It doesn't sound like Sweden has a lot of net-nets. Especially if you only know of one.

I wouldn't know. The strength of Sweden's currency makes me less likely to invest there — I wouldn't want to buy a Swedish stock unless I knew I wasn't at risk of losing a lot of money when I swapped my kronas for dollars after I sold the stock. I don't normally hedge currency risk. So, Sweden wouldn't be the first country I'd look to invest in because I'd have to hedge there. (Here's an illustration of the issue: The Economist's January 2012 Big Mac Index showed a Big Mac sells for the equivalent of $5.91 in Sweden but just $4.20 in the U.S. Assuming that pattern will hold is not a risk I want to take.)

What about the idea of investing in a net-net for reasons other than the operating business?

Yeah. I've done that.

You want to be careful to pick on reason or the other though. It's kind of like how people can get themselves into trouble with a convertible security. Is it a good income producing security? Yes. With a conversion opportunity — yes. Perfect. That's a good investment. But, is it a so-so fixed income investment with this conversion supposedly making it a really attractive combination...

That might work. But you have to be honest with yourself. Why are you buying this thing? Four almost-good-enough reasons may not be as good as one obviously great reason.

Ideally, I like buying perfectly decent businesses when they sell below their net current assets. I think that's the best approach in the long run. I think it's something I can stick to.

But, yes, I'd be willing to buy something just because I think it's safe and I know it's selling for less than it could be liquidated for.

In fact, I've bought stocks with no real operating business left. We have one such stock in the Ben Graham: Net-Net Newsletter! 's mode! l portfolio right now. I won't say the name. But it's just a cash pile (with maybe some value in future tax savings). Anyway, you've read about this kind of stock — and quite possibly this exact stock — at a lot of blogs. No operating business. But it's selling for less than it could be liquidated for.

That works. The in-between situations are tricky. I'd like to know a stock is clearly good enough to invest in comfortably on an operating business valuation or a liquidation valuation. I don't want to justify the investment by thinking I've found a stock that's just good enough when you look at both of those facts. Because chances are the liquidation value will end up being frittered away if the operating business turns out much worse than you expected.

Managers rarely rush to evacuate excess capital from a sinking ship. Usually, they're still there trying to save the wreck.

So I'd be careful about situations that look like a mixed opportunity — half supported by a decent liquidation value and half supported by an operating business.

What about pure liquidations?

I have invested in liquidations. And actually I've had tremendous success in that very narrow category (I've made less than one such investment a year — maybe I've participated in about one liquidation every two years). For example, I bought a company that was basically just a cash pile (it sold its operating business) and was majority owned by Carl Icahn. After a few months, he bought out the remaining shareholders. No surprise. Worked fine. The annualized return was obviously terrific. Any time you get bought out within a few months the annualized number looks great.

I also owned stock in a business that was a poor performer — its product was made obsolete by cell phone cameras — that chose to liquidate. That worked fine too. Took a while. But it worked fine on both an absolute and relative (to the market) basis. And the nice thing about liquidations is they tend! not to m! ove with the rest of your portfolio. They work on their own timetable. A nice kind of diversifying plus.

There are a couple other examples. But that's a good taste of some of what I've invested in outside the normal range of businesses that are still doing today pretty much what they did last year and the year before.

There is nothing wrong with investing in a corporation undergoing a lot of change. In fact, generally, it's far, far better to invest in a corporation that's undergoing a lot of change than in a business undergoing a lot of change. You should be able to figure out what a business is worth in just about any corporate structure — financed in just about any way.

A business undergoing a lot of change is harder to figure out. It's a more fundamental problem to solve. Usually too fundamental. Changing customer habits are the worst. It can be nearly impossible to predict future earnings in situations where you know future customer habits will differ from past habits. That's because customer habits are so basic, so fundamental to everything a business does that a change of habit can ripple through all the financial statements in a way that makes the future completely unlike the past.

Okay. Let's look at the company you asked about.

First of all, I have to admit I didn't even know what Sodastream was before reading your email.

I would watch a situation like this. I'm not sure I'd consider investing in it unless I had a clearer idea of whether it would pay out money or intended to reinvest it all.

If you could get a rump business for very little because a lot of your purchase price will be returned to you in cash over the next year or so — that would be great.

But that doesn't seem to be what you are describing.

If they really intend to reinvest this capital it would be hard to analyze.

From what you said, I think you have history from around 2004 or 2005 to today. So, maybe we are talking about seven ! or eight ! years or something. Correct me if I'm wrong.

And the remaining part of the business was profitable in six or seven of those seven or eight years — all but one.

Yes. I usually prefer — in fact, require — at least 10 years of history before investing in any company for any reason other than its cash.

I like to have 15 to 20 years of history whenever possible. It's often possible with U.S. companies, because EDGAR goes back to around 1996 or so. If a company's been public that long, you can get the data.

Combine this seven or eight years of history with 2% or 3% operating margins — and I'd be very hesitant. To me, I'm not sure how I could ever value that company on an earnings basis. It seems like all I could do is look at liquidation value.

But I would definitely follow the company. They have excess working capital. That's always interesting. You want to be the first person to really understand what is going on if they make an announcement about any distribution, liquidation, acquisition, etc., because of the position they are in. It's definitely a stock that could be mispriced. Stocks going through these kinds of changes can be oddly valued by the market. People just don't know what to do with them.

Just because it's not a decent, consistent business doesn't mean you can't invest in it.

I picked GTSI (GTSI) for the Ben Graham: Net-Net Newsletter.

And that is not a good business. It lost money in about half of the last 10 years. It had no history of earning more than about 6% on equity over time. It was a truly terrible business.

But it was selling for less than its cash and receivables and it had a stake in another company that was obviously worth something.

So, you can include a stock like that as part of a group. I would not have bought it as my only net-net investment. But I had no problem adding it to a newsletter that has picked over a dozen net-nets. As part of a group like that, I think it's a ! fine addi! tion — because it really is selling for less than you could liquidate it for.

With Empire, it sounds like management's plans are the key. So I would follow the stock. And I'd pay attention to who is running the company, what they are saying, and what's going on there.

If they end up owning things you can easily value, it may make a good investment at some point.

Corporate change alone is not a problem. I'd be very happy following a John Malone company through all sorts of corporate changes. Because I can usually figure out what the businesses are worth it's just the structure and changes in what the corporation holds that's tricky.

You get the idea. Change itself is not the problem. A short corporate history in a certain form is not a problem.

But a business that isn't super easy to predict the results of — there's no moat, there is lots of price competition, etc. — where the company is going to increase investment pretty rapidly...

That can be too hard to figure out.

If they end up expanding with some products that you can't evaluate — it'll be a pass for you. But it's worth following. Overcapitalized companies undergoing change are good stocks to follow.

Especially if they are in your home country. Many of my best investments were in my home state of New Jersey when I lived there. Some were pretty local. It helps to follow companies that are maybe a little more obscure.

My best results have been in stocks that were both very simple and very obscure.

I can guarantee you that worldwide there are fewer investors looking at Swedish stocks than U.S. stocks. So you have an advantage there. Use it.

I never like to see someone in a country with a stock market that's not so well known worldwide spending too much of their time analyzing U.S. stocks, UK stocks, Japanese stocks, huge companies, etc.

You actually have an advantage. The companies I know best are American companies. And American com! panies sh! ow up on everybody's screens. So if it's just a matter of being a net-net, below tangible book value, low P/E, high dividend yield, etc. — something really quantitatively conspicuous like that — well, everybody's at least had a chance to glance at that company if it's in the U.S.

This is less likely in most of the rest of the world.

So follow companies like this one. Even if you never actually end up buying Empire you'll get a good idea of what net-net investing is like. Not as good an idea as owning a net-net — that's quite a different experience. More people are abstractly interested in the idea of net-nets than actually end up practicing net-net investing on a regular basis. That's because of how frustrating these stocks — and their managements can sometimes be.

You won't experience that as viscerally when you don't own the stock. But it helps to watch a lot of net-nets you don't own. They will test your patience.

Personally, in this case, I wouldn't know how to evaluate additional investment in some related business of theirs until I actually start seeing the results. So, I don't think I could buy a stock like Empire today. If they were going to pay the money out as a dividend, that would be different. And if they were going to buy an existing business I could research, that would be different. But rapidly growing the existing business — with only a limited history of less than a decade (and really thin margins) to go on is probably too tough for me to wrap my head around.

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10 Best Gold Stocks For 2014

Throughout most of 2013, you could count on the Dow Jones Industrials (DJINDICES: ^DJI  ) to recover from early losses to post impressive gains by the market's close. Yet lately, the stock market has been reversing that trend, with today marking a perfect example. After climbing to a gain of more than 75 points, the Dow steadily worked its way lower throughout the day, and by the close, the Dow finished down almost 43 points. The broader stock market was closer to unchanged, with drops in bond yields and gold prices offset by oil prices that came closer to the $100 per barrel level on fears about unrest in Egypt and the potential impact on oil flows through the Suez Canal.

Yet a couple of important stocks posted significant declines in response to news events. General Electric (NYSE: GE  ) fell 1.9% as it decided not to challenge a regulatory finding by the Financial Stability Oversight Council that the company's GE Capital arm is a systemically important financial institution, a term of art that imposes more regulations on the conglomerate's financial services segment. The move seems somewhat surprising in light of the company's numerous efforts to deemphasize its formerly dominant GE Capital division to favor other businesses like energy, but the division still represents a substantial part of GE's overall business, and a future financial crisis could do its share of damage to the stock.

10 Best Gold Stocks For 2014: First Majestic Silver Corp.(AG)

First Majestic Silver Corp. engages in the production, development, exploration, and acquisition of mineral properties with a focus on silver in Mexico. The company owns interests in La Encantada Silver Mine comprising 4,076 hectares of mining rights and 1,343 hectares of surface land located in Coahuila; La Parrilla Silver Mine consisting of mining concessions covering an area of 69,867 hectares; and San Martin Silver Mine comprising approximately 7,841 hectares of mineral rights and approximately 1,300 hectares of surface land rights located in Jalisco. It also holds interests in Del Toro Silver Mine consisting of 393 contiguous hectares of mining claims and an additional 129 hectares of surface rights located in Zacatecas; Real de Catorce Silver Project comprising 22 mining concessions covering 6,327 hectares located in San Luis Potosi state; and Jalisco Group of Properties consisting of mining claims totalling 5,240 hectares located in Jalisco. The company was founded in 1979 and is headquartered in Vancouver, Canada.

Advisors' Opinion:

• [By Goodwin]

  The shares closed at $88.19, down $1.1, or 1.23%, on the day. Its market capitalization is $77.08 billion. About the company: Siemens AG manufactures a wide range of industrial and consumer products. The Company builds locomotives, traffic control systems, automotive electronics, and engineers electrical power plants. Siemens also provides public and private communications networks, computers, building control systems, medical equipment, and electrical components. The Company operates worldwide.

10 Best Gold Stocks For 2014: Goldman Sachs Group Inc.(The)

The Goldman Sachs Group, Inc., together with its subsidiaries, provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Its Investment Banking segment offers financial advisory, including advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense, risk management, restructurings, and spin-offs; and underwriting securities, loans and other financial instruments, and derivative transactions. The company?s Institutional Client Services segment provides client execution activities, such as fixed income, currency, and commodities client execution related to making markets in interest rate products, credit products, mortgages, currencies, and commodities; and equities related to making markets in equity products, as well as commissions and fees from executing and clearing institutional client transactions on stock, options, and fu tures exchanges. This segment also engages in the securities services business providing financing, securities lending, and other prime brokerage services to institutional clients, including hedge funds, mutual funds, pension funds, and foundations. Its Investing and Lending segment invests in debt securities, loans, public and private equity securities, real estate, consolidated investment entities, and power generation facilities. This segment also involves in the origination of loans to provide financing to clients. The company?s Investment Management segment provides investment management services and investment products to institutional and individual clients. This segment also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to high-net-worth individuals and families. In addition, it provides global investment research services. The company was founded in 1869 and is headquartered in New York, New York.

10 Best Energy Stocks To Invest In 2014: Thompson Creek Metals Company Inc.(TC)

Thompson Creek Metals Company Inc., through its subsidiaries, engages in mining, milling, processing, and marketing molybdenum products in the United States and Canada. The company?s principal properties include the Thompson Creek Mine and mill in Idaho; a metallurgical roasting facility in Langeloth, Pennsylvania; and a joint venture interest in the Endako Mine, mill, and roasting facility in British Columbia. It also holds interests in development projects comprising the Davidson molybdenum property and the Berg copper-molybdenum-silver property located in northern British Columbia; the Howard?s Pass property, a lead and zinc project situated in the Yukon territory-northwest territories border; and the Maze Lake property, a gold project located in the Kivalliq district of Nunavut. The company produces molybdenum products, primarily molybdic oxide and ferromolybdenum, as well as soluble technical oxide, pure molybdenum tri-oxide, and high purity molybdenum disulfide. As o f December 31, 2010, its consolidated recoverable proven and probable ore reserves totaled 462.2 million pounds of contained molybdenum in the Thompson Creek Mine and the Endako Mine. The company was formerly known as Blue Pearl Mining Ltd. and changed its name to Thompson Creek Metals Company Inc. in May 2007. Thompson Creek Metals Company Inc. is based in Denver, Colorado.

Advisors' Opinion:

• [By Christopher Barker]

  My recent survey of bargain-basement stock valuations among gold miners identified Thompson Creek Metals as a glaring opportunity for value investors. The miner sports two world-class molybdenum mines with 534 million pounds of reserves between them, along with an array of attractive development projects in the pipeline. Foremost among those is the Mt. Milligan copper and gold project, where Thompson Creek expects to launch itself into the ranks of intermediate gold producers with production commencing in late 2013.

  With 6 million ounces of gold reserves, accompanied by 2.1 billion pounds of copper, Mt. Milligan will deliver about 262,100 ounces of gold per year for the first six years of a 22-year mine life, averaging 194,500 ounces annually over that entire span. Although 25% of that gold production is already spoken for through a gold stream agreement with Royal Gold (Nasdaq: RGLD  ) , Thompson Creek Metals is sure to enjoy a powerful cash-flow explosion.

10 Best Gold Stocks For 2014: Goldcorp Incorporated(GG)

Goldcorp Inc. engages in the acquisition, exploration, development, and operation of precious metal properties in Canada, the United States, Mexico, and Central and South America. It produces and sells gold, silver, copper, lead, and zinc. The company was founded in 1954 and is headquartered in Vancouver, Canada.

Advisors' Opinion:

• [By Christopher Barker]

  Every ship needs an anchor, and for gold investors looking to navigate the admittedly rough seas of the gold mining industry, I can think of no greater anchor than Goldcorp. With the important caveat that some of the company's substantial challenges faced during 2012 could present further selling pressure in early 2013 as forward production guidance takes a bit of a haircut, I agree with Credit Suisse analyst Anita Soni that any such weakness may present a meaningful buying opportunity. I won't go into great detail here, since investors can access my premium research report on Goldcorp for further discussion of the substantial long-term investment opportunity in the shares of this quality producer.

• [By Smith]

  Although its name does little to denote this, Goldcorp is a well-positioned silver play for 2011, according to the analysts we surveyed.

  “The name is one that people tend to think of it as gold, but it's in the top 20 of silver producers globally with about 13 million ounces a year ,” says Peter Sorrentino of Huntington Funds.

  Morningstar analyst Min Tang-Varner recently raised her fair value estimate for Goldcorp by $12 a share to $48 after the company reported a 28 per cent rise in revenue for the third quarter ended Sept. 30 compared with the year before.

  This, despite 4 per cent decline gold production, as revenue received a boost from $1,239/oz realized gold prices and $19.15/oz silver prices.

  Tang-Varner tells investors that the reduction of Goldcorp's cash cost by $100/oz from the prior quarter to $260/oz due to higher silver, copper and zinc production and the run-up in their prices, was “rather extraordinary.”

  Sorrentino says Goldcorp is a stock that investors would be “wise to consider” if they were looking for a name that would be discovered suddenly as a major silver play, without feeling that they were overpaying for it.

  Goldcorp also prices everything that it does in Canadian dollars, which should reduce currency risks for investors in Canada.

10 Best Gold Stocks For 2014: CME Group Inc.(CME)

CME Group Inc. operates the CME, CBOT, NYMEX, and COMEX regulatory exchanges worldwide. The company provides a range of products available across various asset classes, including futures and options on interest rates, equity indexes, energy, agricultural commodities, metals, foreign exchange, weather, and real estate. It offers various products that provide a means of hedging, speculation, and asset allocation relating to the risks associated with interest rate sensitive instruments, equity ownership, changes in the value of foreign currency, credit risk, and changes in the prices of commodities. CME Group owns and operates clearing house, CME Clearing, which provides clearing and settlement services for exchange-traded contracts and counter derivatives transactions; and also engages in real estate operations. Its primary trade execution facilities consist of its CME Globex electronic trading platform and open outcry trading floors, as well as privately negotiated transact ions that are cleared and settled through its clearing house. In addition, the company offers market data services comprising live quotes, delayed quotes, market reports, and historical data services, as well as involves in index services business. CME Group?s customer base includes professional traders, financial institutions, institutional and individual investors, corporations, manufacturers, producers, and governments. It has strategic partnerships with BM&FBOVESPA S.A., Bursa Malaysia Derivatives, Singapore Exchange Limited, Green Exchange, Dubai Mercantile Exchange, Johannesburg Stock Exchange, and Bolsa Mexicana de Valores, S.A.B. de C.V., as well as joint venture agreement with Dow Jones & Company. The company was formerly known as Chicago Mercantile Exchange Holdings Inc. and changed its name to CME Group Inc. in July 2007. CME Group was founded in 1898 and is headquartered in Chicago, Illinois.

10 Best Gold Stocks For 2014: Australian Dollar(AU)

AngloGold Ashanti Limited primarily engages in the exploration and production of gold. It also produces silver, uranium oxide, and sulfuric acid. The company conducts gold-mining operations in South Africa; continental Africa, including Ghana, Guinea, Mali, Namibia, and Tanzania; Australia; and the Americas, which include Argentina, Brazil, and the United States. It also has mining or exploration operations in the Democratic Republic of the Congo, Guinea, and Colombia. As of December 31, 2010, the company had proved and probable gold reserves of 71.2 million ounces. The company has a strategic alliance with Thani Dubai Mining Limited to explore, develop, and operate mines across the Middle East and parts of North Africa. AngloGold Ashanti Limited, formerly known as Vaal Reefs Exploration and Mining Company Limited, was founded in 1944 and is headquartered in Johannesburg, South Africa.

Advisors' Opinion:

• [By Mel Daris]

  AngloGold Ashanti (AU), a South African company, is trading for $33 and pays a dividend which yields 3.20%. The stock has an astonishing P/E of 1,015. Its net income totaled $112 million last year, but negative cash flows of $620 million. It holds net tangible assets of $4.3 billion and its balance sheet has not grown nearly as quickly as the other companies on this list. AngloGold has two new mines coming online in Congo and Colombia.

10 Best Gold Stocks For 2014: Iamgold Corporation(IAG)

IAMGOLD Corporation, together with its subsidiaries, engages in the exploration, development, and production of mineral resource properties worldwide. It primarily explores for gold, silver, zinc, copper, niobium, diamonds, and other metals. The company holds interests in eight operating gold mines, a niobium producer, a diamond royalty, and exploration and development projects located in Africa and the Americas. Its advanced exploration and development projects include the Westwood project in Canada; and the Quimsacocha project, which consists of 3 mining concessions covering an aggregate area of approximately 8,030 hectares in Ecuador. The company was formerly known as IAMGOLD International African Mining Gold Corporation and changed its name to IAMGOLD Corporation in June 1997. IAMGOLD Corporation was founded in 1990 and is based in Toronto, Canada.

Advisors' Opinion:

• [By Christopher Barker]

  Although I have not shed my long-standing contention that Yamana Gold offers one of the more deeply discounted vehicles for long-term gold exposure, lately my outlook for IAMGOLD has turned particularly bullish. With a looming spin-off of a 10% to 20% stake in the company's reliably profitable Niobec niobium mine, and the recent sale of its interest in a pair of high-cost gold operations in Ghana for $667 million, IAMGOLD finds itself in terrific financial shape to execute an aggressive $1.2 billion expansion imitative at existing operations.

  Considering the $1.6 billion net asset value (after tax) that IAMGOLD recently assessed for the Niobec mine alone, and a presumed hoard of more than $1.2 billion (in cash, cash equivalents, and gold bullion held for investment), at a market capitalization of $6.9 billion I find extreme comfort in the market's resulting valuation for IAMGOLD's 15.2 million ounces of attributable gold reserves.

10 Best Gold Stocks For 2014: Claude Resources Inc.(CGR)

Claude Resources Inc. engages in the acquisition, exploration, and development of precious metal properties, as well as production and marketing of minerals in Canada. It primarily explores for gold in northern Saskatchewan and northwestern Ontario. The company holds interests in the Seabee gold mine located at Laonil Lake, northern Saskatchewan; and the Madsen property that consists of 6 contiguous claim blocks totaling approximately 10,000 acres, located in the Red Lake Mining District of northwestern Ontario. It also holds interest in the Amisk Gold project, which covers an area of 13,800 hectares in the province of Saskatchewan. The company was founded in 1980 and is based in Saskatoon, Canada.

Advisors' Opinion:

• [By Christopher Barker]

  Hardly a johnny-come-lately, Claude Resources initiated small-scale gold production from its flagship Seabee mine in Saskatchewan in 1991. Just last year, Claude added the Santoy 8 mine to that operation to offer a touch of timely growth. Meanwhile, the operation hosts a number of compelling exploration targets like the recently discovered Neptune zone. After 10 of 15 recent drill holes from Neptune featured visible gold, including a nice high-grade intercept of 84.66 g/t over 3.2 meters, prospects are building for Claude to add some additional years to this time-tested operation.

  While I welcome the existing cash flow from Seabee, my investment thesis for Claude Resources centers around a pair of exciting exploration properties: the Amisk joint venture project southeast of Seabee and the Madsen property at Red Lake, Ontario. At Madsen, historical gold production between 1938 and 1976 yielded 2.4 million ounces at an average grade of 9 g/t. To date, Claude has identified an indicated resource of 928,000 ounces at a comparable grade. At Amisk, drill intercepts of eye-catching thickness suggest strong potential for a profitable open pit operation, including an intercept of 2.16 g/t over 241 meters! The deposit's 921,000 indicated gold-equivalent ounces represent only an early stage hint of the deposit's full potential. The stock is a top-10 holding for Sprott Asset Management, and a core holding for this Fool as well.

10 Best Gold Stocks For 2014: Newmont Mining Corporation(Holding Company)

Newmont Mining Corporation, together with its subsidiaries, engages in the acquisition, exploration, and production of gold and copper properties. The company?s assets or operations are located in the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand, and Mexico. As of December 31, 2009, it had proven and probable gold reserves of approximately 93.5 million equity ounces and an aggregate land position of approximately 27,500 square miles. The company was founded in 1916 and is headquartered in Greenwood Village, Colorado.

10 Best Gold Stocks For 2014: Golden Star Resources Ltd(GSS)

Golden Star Resources Ltd., a gold mining and exploration company, through its subsidiaries, engages in the acquisition, exploration, development, and production of gold properties. It owns and operates the Bogoso/Prestea gold mining and processing operation that covers approximately 40 kilometers of strike along the southwest-trending Ashanti gold district in western Ghana; and the Wassa open-pit gold mine located to the east of Bogoso/Prestea in southwest Ghana. The company also has an 81% interest in the Prestea underground gold mine located in Ghana. In addition, it holds interests in various gold exploration projects in Ghana, Sierra Leone, Burkina Faso, Niger, and Cote d?Ivoire, as well as holds and manages exploration properties in Brazil in South America. The company was founded in 1984 and is based in Littleton, Colorado.

Advisors' Opinion:

• [By Curtis]

  Golden Star Resources, Ltd Com (AMEX:GSS): This equity had 10,766,183 shares sold short as of Aug 31st, as compared to 9,400,663 on Aug 15th, which represents a change of 1,365,520 shares, or 14.5%. Days to cover for this company is 3 and average daily trading volume is 3,419,976. About the equity: Golden Star Resources Ltd. is a mid-tier gold mining company. The Company’s operating mines are situated along the Ashanti Gold Belt in Ghana, West Africa.