What’s Happening with Northern Star Resources Shares?

What does Northern Star do?

Northern Star Resources [ASX:NST] is one of Australia’s largest listed gold producers. It’s set to produce around 500,000 ounces of gold in FY17, from five mining operations located in Western Australia.

Unusually for a gold company, Northern Star is highly profitable. It generates a return on equity of around 40%. Considering it sits on excess cash of nearly $400 million, this tells you that the assets are high quality and well run.

What’s happening to NST’s share price?

Today, NST’s share price fell nearly 3.5%. That’s due to a near US$20 an ounce fall in the gold price overnight. While NST is a very well run company, the stock price is volatile, as you can see in the chart below:

Source: Bigcharts

NST peaked at around $5.90 in July last year. It then fell to $3 by December. That’s nearly a 50% decline in six months. The stock then rallied back to $4.90 (60% rise) before falling back to today’s price around $4.15 (15% decline).

What now for NST?

It really depends on the gold price. Gold rallied to near US$1,300 an ounce in April, but quickly retreated again thanks to the Federal Reserve indicating its desire to continue raising interest rates.

If the Fed continues raising rates throughout this year (albeit slowly and steadily) then it’s hard to see gold doing anything but meandering.

For this reason, it’s also hard to get too excited about NST. Although a fundamentally sound company, it won’t head significantly higher without a gold price surge. My best guest is that the stock will continue to be volatile, but won’t do much.

There needs to be a shift in economic momentum that would then change the outlook for interest rates and gold, before things change for NST.

Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.

Greg Canavan
Editor, Money Morning

Greg Canavan is a Feature Editor at Money Morning and Head of Research at Fat Tail Investment Research.

He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’.

That is, investing in the Information Age means you have all the information you need at your fingertips. But how useful is this information? Much of it is noise and serves to confuse, rather than inform, investors.

And, through the process of confirmation bias, you tend to read what you already agree with. As a result, you often only think you know that you know what is going on. But, the fact is, you really don’t know. No one does. The world is far too complex to understand.

When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases.

Greg puts this philosophy into action as the Editor of Crisis & Opportunity. As the name suggests, Greg sees opportunity in a crisis. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines traditional valuation techniques with charting analysis.

Read correctly, a chart contains all the information you need. It contains no opinions or emotion. Combine that with traditional stock analysis and you have a robust stock-selection strategy.

With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the basic, costly mistakes that most private investors do every time they buy a stock.

To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Money Morning here.

And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here.

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