Yamana Gold: A Potential 70% ROI

The month of August often opens the way for bargains in the precious metals and energy sectors. When specific companies and their stock corrects, the oversold condition can set up some good entry points.

Take Yamana Gold (NYSE:AUY) for example. It recently fell a whopping 50% from its 52-week high and last week was trading below $10-a-share. As I write this, it hasn't recovered much and is around $10.36. Look at the 6-month chart on AUY (source: Yahoo! Finance).

On Wednesday  RBC Capital Markets raised its outlook on Yamana Gold Inc. to "Outperform" from "Sector Perform," citing a positive outlook for gold and the Canadian company's growth plans. Now that's our first hint about the potential return here.

In a note to clients, RBC analyst Michael Curran said he viewed the drop in gold prices in recent months as "the summer doldrums."

"Whether or not last Friday's intraday low of $772/oz proves to be the summer 2008 low for gold, we believe many gold equities are at attractive entry points for a subsequent seasonal rally in the fall or later this year," Curran wrote.

As for Yamana, Curran said strong growth plans and liquid gold equities have led shares to realize higher leverage to the price of gold than several other large-cap producers. RBC maintained its 12-month price target for Yamana at $17 a share.

Now do the math. If a person bought some shares at around $10, and the share price of AUY happens to hit $17 over the next year or so, would you be happy with a 70% return? End of story, and let's hope that those of us who own AUY have that kind of return on our investment.

Disclosure: Author holds long positions in AUY, SLW, LMC, HL and PDS

Comments

[Clavis:]

A goodly profit for some maybe but pity the poor Aurelian Resource Inc. retail shareholders, they thought that the were going to have a serious pay day; sitting on the biggest gold find in the last twenty years; but their management sold them down the river so that they will be lucky to see $5 + worthless warrants instead of $20+.
At least they have the guts not to take it lying down and have formed a 'revolt' operation to fight, come what may! Follow the story at agoracom.com ARU.

2008 Aug 23 06:19 AM

[riz109:]

Any comments on where the metalurgical price of coal is heading....noting the consilidation in the steel industry and the need for steel for China's and Indias infrastructure. I am looking at the small caps on TSX - GCW and WTN. Any comments or feedback. Thanks

2008 Aug 23 12:24 PM