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 (NYSE: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 2013 articles.
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 trajectory:
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 Barrick (NYSE: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 blowing.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.