$5 Gold Stocks

By Alix Steel 11/23/09 - 10:15 AM EST

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Stock quotes in this article: NXG , GSS , NCMGY , ABX , NEM , AUY , GDX , GDXJ

NEW YORK (TheStreet) -- As gold prices keep rising investors are hunting for value in gold stocks at any price.

JC Doody, editor of goldstockanalyst.com, is up 150% year to date by buying undervalued mining stocks that have upside regardless of gold's spot price. Gold stocks have the potential to outperform the commodity by three to one. John picks 10 stocks for his portfolio that he thinks can double in 1 to 2 years.

John avoids exploration-only companies and focuses on companies that have proven and probable reserves. If gold prices go higher, John says the best mining companies are those that have plenty of gold in the ground about ten times or more the annual production. As the gold is mined, the ounces become more profitable providing a big catalyst for the stock and big value for investors. I asked John to reveal two of his recent winners.

JC Doody: One company we like, Northgate(NXG Quote), started the year at 83 cents and now it's around $3. Another one we like is Golden Star(GSS Quote). They started at a $1 and now it's $3.50. We think there is more to go but is hard to justify a double right now.

John also takes into account external factors like location and political risk but at the end of the day all ounces are the same and sell at the same price. John says that some of the biggest opportunities are not traded on U.S. exchanges.

JC Doody: We cover North American miners and some of the best ones don't trade in the US markets. One of the biggest ones is Newcrest(NCMGY Quote), it's an Australian company. They trade but only in the pink sheets and Newcrest has a market capitalization of $8-9 billion dollars. So there are plenty of big stocks that don't trade on the US markets because they don't want to participate or comply with Sarbanes-Oxley and the cost associated with that. And so they trade other places as a primary market. But as a secondary market you can buy them on the US pink sheets with no trouble at all.

To buy a pink sheet stock you find on what exchange the stock is traded, check out the exchange price and then find the currency exchange rate between the US dollar and other currency. Then you can put an order in with your internet broker using the pink sheet symbol and a limit order. John says, "They're easy to buy. It's no different in buying any other stock, it just takes one more step to do it."

>>Slideshow: How to Invest in Gold

--Written by Alix Steel in New York.

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