Should You Buy Beadell Resources Ltd at This Share Price?

Ausdrill share price

What happened to the BDR share price?

By early afternoon today, Beadell Resources Ltd [ASX:BDR] had gained 15% on yesterday’s close. Apart from today’s dramatic gains, investors should realise Beadell has actually been a great stock to own over the last few months.

Why did BDR shares do this?

Most analysts forecast BDR reporting lower revenues in 2015 before rebounding in 2016. This will be reflected in weaker earnings during the first half of 2016. On top of this, the stock’s outlook has split the market. Some sees massive gains for BDR over the course of 2016; others expect it to fall.

I want to remind investors the two things that have made BDR attractive recently.

One is its push as a momentum stock. My own model has signalled a buy position for the stock over the last 22 weeks. That would have given you around 40% return.

The other attractive feature relates to the company’s core business — gold mining. BDR’s stock gains are by no means exclusive to it. It is occurring for all gold producers. An economic explanation of the rally in gold might be the ‘flight to safety’ factor. Due to rising volatilities in the stock market, investors have been shifting money out of stocks, opting for cash and gold instead. That has dramatically pushed up the gold producers’ stock values.

From my calculations on asset correlations, BDR has been a low correlation stock to the market. This is indeed a very attractive feature to have in a portfolio in the current market.

What now for BDR?

The question is ‘will it last?’ The answer is unclear. I believe the momentum in BDR will perhaps persist for a little while longer before it starts to decay. On the gold side of things, I believe a re-stabilisation of the stock market will see money flowing back out of gold. This will mean a correction in the gold price. So I’m not overly optimistic on BDR’s short term future. I believe investors need to remain vigilant on BDR in the near future.

Ken Wangdong

Emerging Market Analyst, New Frontier Investor

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