Kaz Minerals is no minnow. This is not a flighty AIM story. This is a story of stock that simply got oversold at a time when the market thought commodities were dead and buried. Of course, Kaz Minerals is not the only FTSE stock to recover strongly over the last 2 years. As mentioned before huge sector bellwethers like Anglo American and Glencore have all recovered strongly after the rout of early 2016. Just what was the market thinking? How can you value Kaz Minerals at £450m and 2 years later value the company at £4.5bln? Well the answer is simple. The market (now regularly called a ‘Casino’ is stooopid. It’s dumb at the best of times. Sophisticated it is not. Algo bot driven, spread driven, hedge fund driven… you name it… the market has become so divorced from reality in ‘value’ terms that idiotic pricing gaps occur on a daily basis. And guess what…? Who cares about value? The market today is simply about generating enough ‘opportunties’ to make money. The more ups and downs the better. It’s recovery stories like Kaz Minerals that all investors should learn a lesson from. The market can be irrational. The market can be very wrong. The market is the market. Investing in stocks at times of panic and fear is a volatile time – it’s a risky business and as such discounts to share prices should be expected. Sometimes companies go under. Sometimes they don’t. But most of the time, companies that are in trouble or looking weak, simply become weaker in share price terms based on shorting activity, debt holders arbitrage trades and of course the vultures… you know the types. Instead of helping good companies recovery from weakness, the market seeks to grind them into dust hoping to pick up the pieces for pennies. It’s an ugly attitude and reveals the true city/market mentality. Make money at all costs. Fortunately for Kaz Minerals and a few others, they escaped the ‘manufactured’ weakness in share prices and have since recovered strongly. If you look back, you won’t see too many broker recommendations on these stocks. Quite the opposite… an eerie silence. Tut tut!. As long term ShareHub followers will know, The ShareHub picks of 2016 returned a whopping 123% growth – final Results shown below.
Look a little closer and you’ll see Kaz Minerals ended 2016 at 357p delivering a solid 2.5 x multibagger after being tipped by TheShareHub at 102.25p. Today, Kaz Minerals touched 1035p and goes into the hall of fame for a second time with a magical 10 x multibagger status tag. Well done Kaz Minerals.
Of course, there are instances when successful stories end as horror stories. Look no further than Xcite Energy. Included in the 2016 picks and contributed a nasty 10% slice off the overall folio performance. And 100% down the drain on a single lined stock basis. Looking at the market today and the current Oil Price on Brent of circa $77pb, there is no doubt that Xcite Energy would be trading at multiple millions with booked reserves of circa 250mmboe+. Unlike Kaz Minerals and others, Xcite Energy failed to secure the funding they needed. A combination of poor management decisions and a market that was bearing its teeth with glee ended what should have been a very prosperous North Sea project generating many much needed jobs. Of course, hindsight is a wonderful thing, but the point that needs to be noted is that had Kaz Minerals and Glencore needed help/support, the chances are they would have been highly dilutive. That’s not the market ‘helping’ companies. It’s a market that seeks to suck the very last drop of blood. Wouldn’t it be refreshing if the market actually stepped in from time to time to ‘assist’ companies in distress on a fair value basis? Afterall, when the boot was on the other foot it was the UK tax payer that was asked to step in and save the bankers and spivs blushes. Today, bonuses throughout the city are flowing again like 2008/2009 never happened. Perhaps if the market took a different tactic going forwards it might help support ‘value’ resource based companies rather than drill them into the ground?
So next time you get fed up with the market and feel valuations are a joke… just remember the Kaz Mineral story. The market gets it wrong…. sometimes very wrong and that’s where you’ll often find the greatest opportunities of all… albeit with higher risks attached. Value often wins through in the end.
The market is full of multibaggers out there – you just have to find them.