A multi-bagger is a stock that returns multiples of your original investment.
In my investing career, I have had the good fortune to buy a few of those incredible stocks, although they’re certainly not everyday events. However, given that most investors have left the mining industry for dead, some of those potential 100%… 1,000%… even 10,000% jackpots are suddenly easier to find.
With so many companies trading at a huge discount to their intrinsic values, there has never been a better time to invest in the resource sector. Here are three depressed names with the potential to double or more.
Where to find 100% returns in the gold industry
Yamana Gold (TSX: YRI)(NYSE: AUY) has been abandoned by the investment community. Thanks to plunging metal prices, the company has been forced to write off millions of ounces in gold reserves. Development issues at some of Yamana’s smaller mines have also weighed on the stock.
However, the company has taken advantage of the industry crisis by buying high quality assets on the cheap. We saw this in action earlier this year when Yamana purchased Osisko Mining in a friendly takeover. With a few more well-timed acquisitions, the company could exit the industry’s current crisis even stronger.
Looking further out, Yamana is expected to generate 50% free cash flow growth over the next two years. That positive outlook hasn’t yet been reflected in the company’s stock price.
This hated commodity could double your money
Coal is probably the most despised commodity in North America today. It’s dirty and old-fashioned. Combine this with slowing demand from emerging economies and more stringent environmental regulations, and it’s no surprise that coal is off more than 60% from its peak price in 2011.
Here’s the problem: over half of global coal producers are now losing money. Small producers are going bust, larger companies are cutting back operations, and nobody is investing in future production. Smart investors know that this is exactly the right time to invest. Prices have to rise or the lights will go out.
Teck Resources (TSX: TCK.B)(NYSE: TCK) is the best way to play any rally in the coal market. The company has enough size and scale to survive the industry’s current doldrums. Cost-cutting measures and an expansion into the energy business also provides an upside catalyst if the coal thesis is slow to play out.
Is this company the next Royal Gold?
Streaming metal companies are a bit of an oddity in the mining business. These firms don’t operate any mines themselves. Rather, they finance new projects in exchange for the right to buy a mine’s production at a steep discount to market prices. It’s a formula that has resulted in quadruple-digit gains for investors at firms like Royal Gold and Silver Wheaton.
Sandstorm Gold (TSX: SSL)(NYSEMKT: SAND) is trying to repeat that feat. This company is only six years old and it is already off to a better start than Royal Gold in its first six years of operation. That’s because Sandstorm already has 14 gold streams producing with more coming online early in 2014. Yet the company’s entire market capitalization is still under $820 million.
But given the company’s cash flows are set to explode, that situation isn’t going to last for long. By 2016, analysts project Sandstorm’s production will hit 60,000 gold equivalent ounces, double the numbers we’re seeing today. And because the company is paying only a fraction of today’s spot prices for these ounces, Sandstorm is going to be gushing cash flow.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton. Silver Wheaton is a recommendation of Stock Advisor Canada.