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Yamana Gold: Buy At The Bottom

Apr. 13, 2018 6:30 AM ETPan American Silver Corp. (PAAS), YRI:CA23 Comments
Josh Rudnik profile picture
Josh Rudnik


  • AUY's share price is breaking out higher.
  • Its fundamentals are improving.
  • I am buying a longer-dated call spread.

Yamana Gold (AUY) is breaking out higher alongside strength in precious metals. Its share price has fallen significantly in recent years due to the collapse in silver and gold prices. Management has reduced costs and expanded production over that time. Now, as precious metal prices stabilize, the company stands to improve profit margins, improving investor optimism. I am buying a call spread as a way to earn high risk-adjusted returns.

Price Action

AUY looks to be forming a bottoming pattern after years of decline. The company is heavily invested in the precious metals space, and therefore fell significantly following the collapse of gold and silver metal prices. As the metals have stabilized in recent years, however, AUY's share price has similarly formed a bottoming pattern in the low single-digits.

The company's profit margins expand and contract due to fluctuations in precious metals prices, thus leading to the correlation between the two assets. In recent years, management's ability to cut costs and lower the cost of production, while also expanding overall production, leveraged the company to gain from a rise in precious metal prices. Due to recent strength in both gold and silver, I am a buyer of AUY. Its breakout above $2.80 was significant and could lead to further upward momentum. I have a stop-loss level at roughly $2.6, should its share price reverse lower, proving my investment thesis incorrect.

Fundamental Narrative

AUY looks like an attractive investment at current levels due to its increasing production, and improved cash flow, as the company is leveraged to rising precious metal prices. Over the last year, management increased its gold production guidance by a couple of tonnes, while silver guidance was also increased. The company was able to exceed not only its elevated guidance by several tonnes for gold and silver, but also exceeded its budget expectations, according to

This article was written by

Josh Rudnik profile picture
I am currently a portfolio manager at an RIA in Philadelphia with over $1 billion in assets. The portfolio is dedicated towards macro themed positioning with equities, ETFs, fixed income, as well as options and other alternatives. There are opportunities everywhere, both on the long and short side, and I aim to generate absolute returns on an annualized basis for clients. My absolute return portfolio has returned double-digit percentage returns over the last decade regardless of if the market is selling off, or rallying higher with enthusiasm. Relative returns are nice, but at the end of the day, you can't eat relative returns. When the S&P 500 is down 20%, it doesn't necessarily mean you have to be down too. Join my Marketplace service, Absolute Returns, and see how I am positioning my portfolio in real-time, and what trade ideas are coming about daily. I also offer a live chat as part of the service, where questions and ideas can be discussed.

Analyst’s Disclosure: I am/we are long AUY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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