After losing tremendous weight in recent months, gold and silver stocks are looking leaner and fitter for a rally. There are some fundamental reasons behind this positive thinking in precious metal stocks such as First Majestic Silver Corp (NYSE:AG), Alamos Gold Inc (NYSE:AGI) (TSE:AGI) , and AuRico Gold Inc (NYSE:AUQ) (TSE:AUQ). Here is a closer look:
First Majestic Stocks Surged
First Majestic Silver Corp (NYSE:AG) has a majority of mining operations based in Mexico with some retail and trading presence in Canada and Europe. The stock has traded in the range of $8.81 – $24.20 in the last 52 weeks and currently trades at $11. After hitting a peak in November, the stock has been in a condition of perpetual fall and has lost nearly half of its market capitalization.
Below is our 13F roundup for some high profile hedge funds for the three months to the end of March 2021 (Q1). Q1 2021 hedge fund letters, conferences and more The statements only include equity positions as 13Fs do not include cash and debt holdings. They also only include US equity holdings. Funds may hold Read More
However, last week has been rewarding for investors who stuck to their guns as the stock surged 24 percent. Apart from analysts predicting that the worst is over for precious metals, First Majestic Silver Corp (NYSE:AG) has also benefited from some positive developments.
Early this month, it received a payment of nearly $14 million as partial compensation under a judgment that could eventually bring $93.84 million to the company. The stock received a Buy rating from Zacks while analysts at BMO Capital Markets also upgraded the stock to ‘outperform’. Investors can’t be sure if the correction in silver is over yet but the fact that the stock is available at a forward price earnings ratio of 5.3 and debt equity ratio of 0.3 indicates First Majestic Silver Corp (NYSE:AG) is better positioned to take advantage of a possible recovery.
Here Cometh Gold
Prices of the yellow metal have jumped nearly 6 percent last week and the positive momentum in the SPDR Gold Trust (ETF) (NYSEARCA:GLD) in the same period is a vindication the tide may be turning in gold. In line with this, Alamos Gold Inc (NYSE:AGI) (TSE:AGI) shot in double digits last week. There are a number of positives with this stock.
For its 2013 guidance, the company said it expects to mine 180,000 to 200,000 ounces of gold at a cash operating cost per ounce sold of $415 to $435 per ounce. These are among the lowest costs for gold mining and the fact that the company is free of debt tells us that it will continue to pay dividends even if gold prices decline further. In addition, the company is undertaking a share repurchase program which is the biggest factor for a stock price increase.
AuRico Gold Jump in Sales
In line with other precious metal companies, Toronto-based gold producer AuRico Gold Inc (NYSE:AUQ) (TSE:AQU) has seen pretty rough days in the recent past. Its six-month share price loss stands at 40 percent and current price of $4.6 is at the lower end of its 52 week range of $ 4.01 – $8.56. This steep decline has brought the stock in line with fundamentals and almost in the value buy territory. A huge 41 percent discount to its book value of $7.7 per share is an example of this undervaluation. At the same time, it offers a dividend yield of 3.5 percent.
A look at the recent financial performance tells this may be a good time to lock this dividend yield. In the quarter ended March 31, 2013, the company reported a 94 percent jump in sales to $64.9 million while profits stood at $18.3 million. The company is virtually debt free and this is a big factor in the forward price earnings ratio of 13.
Overall, it remains an open question if the correction in precious metals is over although the recent spike may be the beginning of a turnaround. Being regularly covered by analysts, First Majestic Silver Corp (NYSE:AG) appears to be a strong candidate for a breakout while Alamos Gold Inc (NYSE:AGI) (TSE:AGI) and AuRico Gold Inc (NYSE:AUQ) (TSE:AUQ) also present good cases. Given the industrial uses of silver, First Majestic Silver has a slight advantage over its gold mining counterparts.