TSI Stock Selection Update #89
Posted May 21, 2019
The price of platinum has pulled back from an early-April high of US$920 to
$833, meaning that it has 'corrected' by almost 10% in a little more than a
month. Over the same period the price of the Physical Platinum ETF (PPLT)
has dropped from around US$86 to US$78.79. Both platinum and PPLT are now trading very close to their respective 200-day moving averages. This has created another good opportunity to buy platinum.
We have decided to add PPLT to the TSI Stocks List at Thursday's closing
price of US$78.79. It is being added as a trading (as opposed to a
long-term) position, although buyers should be prepared to hold for up to
two years. We expect that within this period platinum will trade at least
50% above its current price.
Unlike a company that produces a useful commodity, the commodity itself
can't go bankrupt. Consequently, there is a lot less risk involved in buying
physical platinum than there is in buying the shares of any platinum mining company. For example, if you obtain exposure to platinum by purchasing the shares of Sibanye (SBGL) or Platinum Group Metals (PLG) then your maximum possible loss is 100%, regardless of how cheap the shares appear to be.
However, if you buy physical platinum at today's depressed level then your
maximum possible loss will be less than 20% (we think the worst-case
realistic scenario is a test of last year's low, which implies downside risk
of about 10%). To put it another way, platinum could get a bit cheaper but
it ain't going to zero! As a result, averaging down can be a very low-risk
strategy for patient buyers of physical metal.
We suspect that platinum's correction has almost run its course, but,
further to the above comments, buyers near today's price in the $830s should be prepared to average down if given the opportunity to do so near long-term support in the $780s.
By the way, an equivalent fund to PPLT trades on the ASX under the symbol ETPMPT. This fund is a reasonable way to gain exposure to platinum, but it is very illiquid and therefore can be difficult to trade. It traded earlier today at A$114.78.
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