Single Resource Companies
Single resource companies are generally found in the mining and oil industries that are involved in exploration and/or production of a single commodity. Gold companies and oil companies commonly fall into this category. Why do I avoid them? They are too dependent on the price of the lone resource. Resource prices can fluctuate quite markedly over time. Of course, this assumes that they have a resource to sell. They may also be operating in one country and be exposed to sovereign risk. That is, if the government of that country is unstable, so might be the prospects of the company. In some cases, the company may still be in the exploration phase and is 'burning cash' to finance the exploration. I would be gambling on the prospect of them finding something. This provides a greater reason for me to avoid them. Companies that are involved in the exploration and production of a range of resources offer far less risk because of their diversification across resources and across countries. Examples of these include global resource companies such as BHP Billiton and RIO. Alternatively, some conglomerate companies may contain a resource division based on a single resource, as well as other divisions unrelated to resources. This provides them with some protection if the price of the resource drops for some reason. So while some of these companies based on a single resource can enjoy being the flavor-of-the-month from time to time, they are high risk and not an ongoing passport to wealth. Single resource uranium companies in Australia are a good current example. So ... I look for good investment ideas elsewhere. Return from Single Resource Companies to Good Stocks to Buy
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