Resource stocks are, by nature, cyclical due to supply and demand dynamics that drive the underlying commodity price. Thus, buying when these equities are most unloved by the market has, in general, paid off for investors historically over the longer term.
But is there a better time of the year to buy these stocks? ‘Sell in May and go away’ is an old stock market adage that has, historically, rang true for some resource stocks.
Junior resource companies with operations in cold climate countries, such as Canada, tend to drill in the summer months (when the ground is not frozen) and thus the drill results are often released in the fall and winter, which provides catalysts for its stock price.
As well, tax-loss selling season, which usually takes place in November and December, is when junior resource stock prices have historically tended to bottom for the year. Some investors will sell a stock at a loss for the current tax year to offset capital gains but then repurchase those shares 30 days later so not to trigger a superficial loss that will be disallowed by the tax collector in Canada (and could apply to other jurisdictions as well).
That said, resource stocks, particularly the juniors, have historically performed best during the period of December to the beginning of March, leading up to the annual Prospectors & Developers Association of Canada (PDAC) convention in Toronto.
The so-called 'PDAC effect' was coined by the old timers, referring to the mining stock promoters who would talk about a big company announcement, or newsletter writer endorsement, coming at the convention that would create a wave of retail speculatory buying in the stock.
Selling would be seen following the convention – a ‘buy on rumour, sell on fact’ event that often occurs in stock trading, although the quality companies always seem to bounce back quickly.
One stock that has defied seasonal weakness this year is Troilus Gold Corp (TSX:TLG, OTCQX:CHXMF), climbing 29% over the past month to its current price of $0.46 (as of December 22).
Troilus is de-risking the former gold and copper Troilus Mine in Quebec towards production, having recently released an updated resource estimate that showed a 126% increase in its indicated resource, which now totals 11.21 million ounces of gold equivalent.
The company also just closed a C$15 million equity financing, which will be used for further exploration work at Troilus as well as a feasibility study that is expected to be completed in early 2024. All of which should produce plenty of news flow and stock price catalysts in the coming weeks and months.
Another stock showing strength in recent weeks is Kootenay Silver Inc. (TSX-V:KTN) Shares of the silver project developer have surged 50% over the past three months to its recent price of $1.20 (as of December 22).
Kootenay has one of the largest junior owned silver asset bases in Mexico and has released a series of high-grade silver drill results during the past quarter from its Columba project.
Red Cloud Securities analysts recently initiated coverage of Kootenay Silver stock with a ‘Buy’ rating and a C$3.50 per share target price, implying 192% upside from current levels.
They noted that Kootenay offers investors exposure to a highly undervalued portfolio of high-grade advanced exploration projects backstopped by 281 million plus ounces of existing silver equivalent resources.
The analysts also outlined some upcoming catalysts for the company’s stock, including drill results and a maiden resource estimate for Columba as well as a potential updated estimate for its La Cigarra project in 2024.
Thus, with interest rates set to fall and the prices of key commodities climbing, the investment environment looks favourable for junior resource stocks heading into 2024.