Using these three tips for selecting Mining stocks when commodity prices rise again can provide life-changing gains in the right market scenario. Early commodity bull markets required investors to buy either options or futures on a commodities exchange. Now investors have exchange traded funds, stock index funds, and commodity exchanges for investing in commodity bull markets.
Investing directly in mining will typically exceed the returns for investing in commodities or ETF’s. Mining stocks are notoriously volatile going both up and down in dramatic fashion. When an investor selects the correct mining stock and benefits from catching a commodities bull market, the profits can be more than 4000%, for example with Aurelian Resources, over the lifespan of the growth curve. This is the reason why some analysts specialize in mining stocks.
Here are a few tips for making sure that you adopt the best investment strategy:
Companies like Freeport-McMoRan, Rio Tinto, BHP Billiton, and other multi-ore producers are not going to double or triple their share price over night. These major mining companies will be able to pay dividends and increase their share price in a secure fashion during a commodities up trend.
Major mining companies will also be the first ones to receive investments from large fund managers. When these large fund managers invest in the major mining companies. They can move up in price before the rest of the market follows. This translates to the large mining companies moving first and steadily once the market establishes a growth trend.
As the market for metals heats up, the major producers begin looking for mid-tier producers to buy for increasing their reserve capacity. This leads to the next phase of a bull market where mid-tier producers become by out targets. Explosive price increases can happen with mid-tier producers but typically the buyouts are do not offer life-changing profit levels. Buying mid-tier mining stocks is slightly less secure than buying a major but the profit opportunities are significantly greater.
Junior mining companies may or may not be producing ore. Because of their smaller size and less developed business model, junior miners are high risk investments. Experienced mining investors will buy a basket of junior stocks that they have researched thoroughly, up to about 10 or 20, and expect more than half of them to disappear from the market. The remaining junior mining companies may go on to increase shareholder value significantly if they manage their resources well.
Essentially the game is to secure a financial foundation with the major companies, then add wealth appreciation with mid-tier mining companies, and buy lottery tickets with junior companies.