It’s a sickening time for many investors who may have overestimated their ability to tolerate risk and volatility. And while the stomachs of all investors will surely be put to the test at some point down the road, I think that those who aren’t at all phased may wish to start exploring potential value opportunities to pick up on weakness.
Undoubtedly, when the broad stock market (on both sides of the border) was surging to new all-time highs, there was concern about lofty valuations and a potential bust. Now that things have corrected a bit (many stocks are deep into a correction or bear market, even if the broad market isn’t anywhere close to the 10% peak-to-trough decline level), there’s no reason to sit on the sidelines, especially if you’ve been meaning to put a bit of new money to work.
Perhaps you’ve overstayed in savings accounts and are ready to shift gears, or you’ve got a Guaranteed Investment Certificate that you’re not looking to renew. In any case, the current environment, though a bit panicky, could be full of discounts for investors who have the capital and the bravery to go against the grain.
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Agnico Eagle Mines
Agnico Eagle Mines (TSX: AEM) was overdue for a painful moment like this, but just because the bear market came furiously after the miners doesn’t mean it’s time to throw in the towel. Undoubtedly, the miners have a long history of questionable operating moves, acquisitions, and hefty capital expenditures. And while gold has really heated up in recent years, the big miners still haven’t caught up to the magnitude of the run even after the latest price correction.
Gold was supposed to do well when geopolitical tensions surge and unknowns rocket higher. But with the strength in the U.S. dollar and interest rate cut hopes shot down, perhaps it’s no surprise to see gold take a vicious move lower. It was overdue, as I’ve noted in previous pieces on how a “safe” asset could suddenly cease to be such. As a premier large-cap miner with a $127 billion market cap, I’d look very closely at shares of AEM on the way down.
They’ve shed nearly 27% of their value since the start of March. That’s excessive, to say the least. And while gold may struggle to stay above US$5,000 per ounce, I’d argue that the miners’ amplified implosion might pave the way for a spike at some point down the line.
The higher they fly, the faster (and harder) they fall certainly applies to the choppy world of the gold miners.
Just be ready to average down, as it’s hard to tell when pain will lead to joy again for the gold bugs. For now, the stock trades at just over 14.0 times forward price to earnings. If gold bounces, expect an amplified move from AEM, as the firm looks to return the big surge in cash flows driven by the past year’s surge in gold prices.
Bottom line
Given that many big banks still have US$6,000 per ounce as an upside target for gold, I’d say those seeking torque to play the “debasement trade,” which I believe is still on the table, may wish to start getting serious about AEM and the broader basket of miners.
