and silver are often chosen as “safe havens” when equities are losing ground
and earnings are on the decline. The former
is considered by many to be a form of global currency while the latter tends to
track its price at a fraction of the cost.
long term trends for precious metals like Gold have been bullish, buying them
at the wrong time can sometimes mean months or years of your investment being
underwater until prices rebound.
stocks can sometimes amplify the volatile movements of precious metals they
gather from the Earth, especially when there are dramatic movements in the price
of the commodity itself combined with no reduction or even increases in the
costs associated with mining the commodities themselves.
can turn a “safe haven” into a big headache…
though shares are only trading at 14 times forward earnings, Yamana Gold AUY may
be one of the precious metal miners to avoid; at least for now.
& Commodities Struggling
2013 has been the year of the quiet commodity correction with everything from
corn, wheat and soybeans to silver and gold, commodities have been on the
decline for many reasons. The main impetus
for gold moving lower has been a normal correction in an asset that has seen tremendous
appreciation sparked by a global slowdown, increased taxation of the yellow from
countries like India (the world’s top consumer of gold) and other pressures.
central banks print money in unison, we have to remember that [gold] markets have already priced much of this in and since
much of that cash has not found its way into consumers’ hand directly, global inflation
has been kept as bay (for now).
I believe that the long term outlook for gold is good, I still see further
deterioration in prices as economies and consumption continue to struggle. That said, if the U.S. recovers enough for
the Fed to remove/reduce stimulus and begin to raise rates, the price of gold
could also be negatively affected.
of these factors may make it tough for Yamana Gold and its peers to please
investors and keep their stock prices up as elevated gold prices are their key
to increased margins and subsequent profits.
good friend of mine always says “it always comes back to commodities,” but I think
this is not the commodity I would be coming back to just yet, especially not
with a mining stock.
Yamana has been seeing more than its
stock price fall over the last 6 months; earnings have also suffered and AUY
has seen back to back misses in its earnings reports. Last quarter, AUY delivered a profit of just
16 cents, missing the Zacks Consensus estimate by 5 cents or almost 24%. It has missed earnings 3 of the last 4
reports and just barely met Q3 2012 estimates.
The majority of analysts have been lowering
forecasts for the mining company with 2013 estimates being slashed by 34% and
2014 estimates by 25% in the last 90days alone.
One might argue that shares are down 50%
from the highs in 2012 and could be a buy here.
While this is true, you could be catching a falling knife if gold prices
continue to falter. 2014 estimates are
still 31% higher than current year estimates, which could be a hard target to
hit if gold prices don’t come roaring back.
Instead of looking at another miner like
Agnico Eagle Mines Ltd (AEM - Analyst Report), who has a Zacks Rank of 3 (hold), maybe you could
focus your energy (literally) on a space that has some legs under it.
Chesapeake Energy (CHK - Analyst Report) is a natural gas play
and is investing quite a bit of time and money into natural gas delivery
infrastructure here in the States.
Companies like Ryder, UPS, FedEx, AT&T and others are migrating their
fleets to natural gas as an alternative to high petrol prices. This should be a huge motivator for nat gas prices.
The price of natural gas has already been on
the rise, but remains relatively low.
You could also explore the U.S. Natural Gas Fund to invest in natural
gas in the form of an ETF.
Regardless of which commodity you choose to
put your money in, be sure that the
macro fundamentals play into your thesis in the near term and the long term.
Jared A Levy is one of the most highly sought after traders in the world and a
former member of three major stock exchanges. That is why you will frequently
see him appear on Fox Business, CNBC and Bloomberg providing his timely
insights to other investors. He has written and published two tomes, “Your
Options Handbook” and “The
Bloomberg Visual Guide to Options”. You can discover more of his
insights and recommendations through his two portfolio recommendation services:
Zacks Whisper Trader- Learn to
buy stocks likely to have robust earnings BEFORE they report.
Zacks TAZR Trader – Technical Analysis +
Zacks Rank. Best of both worlds approach to find timely trades.
Jared A Levy on twitter at @jaredalevy
Jared A Levy on Facebook