On April 10, 2012, we recommended Agnico-Eagle Mines (AEM). At the time, we were basing our first individual recommendation of gold stocks on our Gold Stock Indicator. Our Gold Stock Indicator had been in a declining trend since November 2010, suggesting that no purchase of gold stocks should take place. However, once our Gold Stock Indicator declined below the long-term buy indication in early April 2012, it was a clear signal to start acquiring gold stocks.
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The reversal of the declining trend has been reflected in gains in the gold stock sector across the board. In our initial analysis of Agnico-Eagle Mines we projected that, based on Edson Gould's Altimeter, the stock price was likely to increase from +100% to +175% over a two-year period. Since our recommendation on April 10, Agnico-Eagle has gained just over +45%. Our experience indicates that there will be many opportunities to re-acquire Agnico-Eagle at better relative prices.
According to Value Line Investment Survey, Agnico-Eagle trades at a fair value of $39. The current price of Agnico-Eagle, at $49.76, is 27% above the fair value price. Stocks that are selling above fair value and that have had above-market returns should be sold. Yahoo Finance and Morningstar indicate that Agnico-Eagle is operating at a loss for the trailing 12 months. We will reconsider Agnico-Eagle when the stock approaches an undervalued range based Edson Gould's Altimeter.
Those not interested in following through with our sell recommendation can feel comfortable knowing that Agnico-Eagle is a reasonable holding until our Gold Stock Indicator crosses above the long-term sell level. So far, Agnico-Eagle has a 45% downside cushion since our investment observation. It should be noted that the stock faces significant upside resistance at $52 and $60.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I am a holder of physical gold and silver.