Since gold entered a steep decline in 2013, it's been easy to
pick a "Bear of the Day" to write about. All you had to do was go
to the Zacks #5 Rank list and grab a gold miner.
Well that tide has slowly been turning this year, with the industry
grinding its way back up from the bottom third of groups to the top
30%. And this week's top of the heap #1 Rank is
Agnico Eagle Mines
(AEM), who I chose for a "Bear" write-up at least twice last year.
Agnico was always a unique miner in that they had a policy of not
hedging with forward contract sales to lock in prices. That
benefited them during gold's great rally up to $1900, but obviously
hurt them on the way down as I pointed out in my April and July
And every miner has their own unique challenges with costs, labor,
and regional regulations around the globe. Here's what I
highlighted in my April 2013 piece...
One of Agnico Eagle's main issues has been the persistently
high operating costs at its Meadowbank mine in the Canadian Arctic.
Ore dilution resulted in lower than expected grades to the mill,
and the cost of transportation, logistics, labor and maintenance
continued to be much higher than expected.
Turning the Corner
Agnico Eagle Mines Limited is a Toronto-based gold producer with
exploration and development activities in Canada, Finland, Mexico
and the U.S. The reason the stock became a Zacks #1 Rank is because
earnings estimates have taken a decisive turn upwards lately.
A 140% positive earnings surprise last quarter -- they reported
$0.60 vs consensus expectations of $0.25 -- certainly helped their
case. And it must have really caught analysts off-guard to find
AEM's operations improving so quickly.
The proprietary Price & Consensus chart below tells the tale of
the multi-year decline and potential bottom in the AEM earnings
This is what I said you had to wait for to be sure that AEM was
becoming a stable investment again. Though the turn looks small and
we can't be sure how sustainable it is, here are the details you
need to watch...
The launch in estimates for this year is certainly impressive, from
$0.54 to $1.20 in only 90 days. Of some concern is that while
estimates for next year were revised higher by 41%, from $0.80 to
$1.13, they represent negative growth year-over-year.
Trading at 25X on a forward basis makes AEM more expensive than
(ABX) at 22X. But there's a good reason the former's stock is
carving out a bottom and the latter is headed back to its lows.
If you don't follow the fundamentals for gold or specific
companies, just watch the Zacks Rank for individual stocks and the
industry and it will tell you which way the precious metals wind is
Kevin Cook is a Senior Stock Strategist for Zacks where he runs
Follow The Money
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