Resource exploration stocks are notoriously volatile. Fear and greed play out in this sector like few others. Stocks tend to go irrationally high and stupidly low. And therein lies the opportunity.

So, let’s look at techniques you can utilize to speculate in the resource exploration sector to  make unfathomable profits.

The vast majority of exploration companies are hazardous to your financial health. The key is to select only the finest companies. And in this sector, that means starting with the most talented and experienced management that are working on highly promising projects.

Your company must also be able to weather most any storm that comes its way. If I’m certain that a resource stock has the required long-term staying power I will put it in the “buy and accumulate” category.  That means I take an initial position, and then happily purchase more shares on any subsequent price weakness that has nothing to do with the company’s overall fundamentals. This is how you make volatility your friend.

You see, resource companies frequently sell off en masse. Healthy babies are routinely thrown out with the bath water. Let’s look at a stock called Impact Silver (AMEX:IPT) that is in the portfolio of my Resource Windfall Speculator service:

In this portfolio, we select stocks that relate to specific commodities that are in long term bull markets. Silver certainly qualifies on that count and we hold six total silver stocks in the portfolio right now.

To tell you the truth, Impact did not appear overpriced at the $1.50 Canadian range in early 2008. However, the global financial crash altered that perception — even though silver performed just fine last year. In fact, silver was up in 2008 and has been up nearly every year this decade. Impact silver has a 52 week high of $0.88 Canadian and a 52 week low of $0.175. How’s that for volatility?

Impact Silver has remained a buy for all of this time, because the company’s fundamentals were just fine. Their silver production and successful exploration remained on track. While the price fluctuated enormously, the value remained intact.

Again, we identify long-term value and take advantage of short-term price weaknesses when it is illogical. Anyone who had the courage to buy Impact Silver near $0.175 Canadian is pretty happy right now with its $.77 share price. That’s a 340% gain. They’ll be even happier when the company far surpasses its previous highs.

Yes, those who bought IPT near $1.50 still have some catching up to do. But that’s okay. If you want to speculate, you must be able to absorb some losses without sacrificing excessive sleep.

Another stock I personally own, Salazar Resources, has a 52 week low of $.12 Canadian and is now trading near $.80. Stock appreciations over the last eight months of 100 – 200% gains are commonplace.

The primary point is that bottom feeders can make astounding profits. We’re staring at another extreme opportunity in the coming weeks for rescuing babies from bath water.

•    Resource stocks are typically weak in late summer because the most influential players are on vacation.
•    Gold and silver get official spankings via government management with predictable regularity.
•    Resource stocks tend to sell off with the overall stock market, which now looks exceedingly vulnerable.

I’m convinced that $1,200 gold and $20 plus silver will soon be the floors under these precious metals. There will be few screaming bargains when these factors are in place. In the mean time we are probably heading for another bout of overall sector weakness that has next to nothing to do with individual company fundamentals. A banquet for bottom feeders is always a special occasion and we will be loading up in my advisory.

Are you hungry?

Invest Resourcefully,

Rusty

Source: A Banquet for Bottom Feeders