Bears Make a Case for the Bull, Part 2

Editor's note: This is Part 2 of Michael Brush's look at some of the bears' top picks for 2007. Be sure to click here to read Part 1.

In Part 1 of this series, Outstanding Investments editor Justin Litle looked at a few of his favorites for 2007. In the finale, Ruff Times editor Howard Ruff runs through a few of his own favorites.

Ruff Times

Like Litle, Howard Ruff believes a growing money supply in many countries around the world will create inflation in 2007. That will be good for gold stocks, which investors turn to as a hedge against rising prices. "We are in the middle of a massive monetary inflation," says Ruff.

Ruff also thinks 2007 will be a bad year for stocks because he doesn't believe the bear market that started in 2000 is over yet. We heard his reasoning early on in this recovery: Stocks never hit the low valuations normally associated with the bottom of a bear market.

"If history is your guide, the stock market is not going to be the best place for your money," says Ruff. "You will make far more money in the mining stocks and precious and base metals than you will in the stock market in general over the next few years."

He's worth listening to. His picks have produced 28.6% annualized gains over the past five years, winning him third place among all newsletters followed by Hulbert Financial Digest for five-year returns.

The author of a book on how to invest in precious metals called Ruff's Little Book of Big Fortunes in Gold & Silver, Ruff suggests investors go with three gold stocks to boost returns in 2007. All of them have a lot of exposure to mining in North America -- or work there exclusively -- which helps you avoid the risk of expropriation of mines. He also thinks it's smart to go with companies that already have gold in production rather than risk getting stuck with a speculative company that turns out to be little more than "a hole in the ground surrounded by liars."

Newmont Mining

Newmont Mining (NEM - commentary - Cramer's Take) is a more "conservative" way to play the rising price of gold for a couple of reasons, says Ruff. It is the world's largest gold company, with operations on five continents and annual production of about 5.8 million ounces. It also has a market cap of over $20 billion and runs big operations in Nevada and Australia -- which reduces political risk. Lastly, the stock hasn't risen as much as other gold stocks because of limited production growth. But several new projects -- such as mines in Ghana -- should boost production and the stock in 2007 and 2008.

Goldcorp

Like Newmont, Goldcorp (GG - commentary - Cramer's Take) is a giant mining company with a market cap of around $19 billion and operations in North and South America and Australia. It also produces copper and silver.

Goldcorp has been growing through rapid-fire acquisitions, and the buying spree isn't over. This strategy brings a lot of growth and has added copper and silver to the company's portfolio. However, it also heightens the risk that Goldcorp might hurt shareholders by overpaying for assets. Also, Goldcorp doesn't hedge against changes in the value of gold, so its stock is more sensitive to the increasing gold prices that Ruff expects.

Agnico-Eagle Mines

Toronto-based Agnico-Eagle Mines (AEM - commentary - Cramer's Take) is a smaller player with a market cap of $4.8 billion. It produces and searches for gold, silver, copper and zinc in Canada. The company's biggest asset is the LaRonde mine in northwestern Quebec, but it has several projects in development that could triple gold production over the next three years.

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At the time of publication, Brush held no positions in the stocks mentioned, although positions may change at any time.

Brush is an award-winning New York-based financial writer. In addition to writing for RealMoney, he has a weekly market column on MSN Money called Company Focus, and a column called Insiders Corner at InvestorIdeas.com. Brush has covered business and investing for The New York Times, Money magazine and the Economist Group. He studied at Columbia Business School in the Knight-Bagehot Fellowship program and the Johns Hopkins School of Advanced International Studies. He is the author of Lessons From the Front Line, a book that offers insights on investing and the markets based on the experiences of professional money managers.

Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Brush appreciates your feedback; click here to send him an email.