I have written several posts recently about the HUI Gold Bugs Index using fundamental analysis techniques, such as earnings and projected earnings for each of the 16 gold miners comprising the index. And I have pondered the future of gold miners using technical analysis that has considered established price trend lines and the momentum of both index and individual component miners using the True Strength Index (TSI) indicator. Finally, I have offered my thoughts using something of a hybrid analysis technique. That being the supply/demand positioning of the hard ball professional traders, otherwise identified as the Commercial and Managed Money subsets and identified in the weekly Commitment of Traders Report (COT).
But tonight, this post will be different once again, though it will be about the HUI Gold Bugs Index - at least indirectly. Rather than discuss the HUI index at large, I am so disgusted with how stupid cheap this group has become I thought it fun to see if I could figure out which of the 16 is the 'most stupid cheap' (and by implication most likely to appreciate fastest when the selling pressure is exhausted).
If you would like to consider a huge miner with enormous capitalization, gigantic liquidity, lots of cash in its vault, positive earnings, diversified multi-national operations, a history of getting oversold then moving hundreds of percent higher within a single year and of course, selling TODAY at a stupid cheap price, then I think I just may have a stock you'll want to take a closer look at.
With no further adieu, I give you my vote for the 'Most Stupid Cheap' gold miner of the HUI Gold Bugs Index.
IAMGOLD CORP (IAG)
Let's take a look at the monthly and weekly charts, beginning with the monthly, and see what this cash-cow of an investment looks like.
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| Click on any chart to ENLARGE |
The TSI has provided a positive divergence BUY signal and downward momentum appears about ready to be declared exhausted.
The On Balance Volume (OBV) indicator shows that over the past 18 months an incredible number of shares have been traded on months when the price change was negative. On the face of it this may appear to some as a negative indication. But as we shall see in a little bit, this incredible record of selling could well represent the complete liquidation of every scrap of ammo held by a potential seller. In other words, capitulation.
But let's move along to the weekly chart where I have much more information to share.
This chart is loaded with carefully researched data. On the technical side, the TSI suggests that the rubber band has been stretched beyond historic standards and ready to propel a rocket shot rebound. Indeed, following the 2008 bottom IAG blasted off from a low of $2.22 and did not begin to lose altitude until it reached $21.00 in just 14 months - a stunning gain of 856%.
This is impressive but not likely to happen again unless the fundamentals are solid. And guess what? Solid, they are!
IAG's price/earnings ratio (PE) of around 8 is the lowest of the 16 HUI gold miners. The price/book ratio is also the lowest of the pack. IAG sells at just 70% of its tangible book value.
The stock closed today at $6.55 today but incredibly, the company has $2.65 per share in CASH. Earnings per share are expected to come in around $0.84 for 2012 and are projected, using an average calculated from the analysis of 21 analysts who cover the company, at $0.93.
IAMGOLD pays a 3.8% annual dividend.
Estimated cash costs for the company to produce an ounce of gold is $875-950. With gold close to $1600, the company has the 4th highest profit margin in the HUI index at 25.0%.
Just days ago the company announced their intention to cut $100M of costs over the next 12 months. Their aim is to boost the Rate of Return (ROI) for stock investors. It's always appreciated when a company's management tries to do things to help their shareholders, right?
The stock float is 377M shares. This week IAG traded 55.3M shares. This amounted to fully 15% of the entire float that was traded just this week. Holy cow. Capitulation. (!)
And finally, during the past 4 months, as the stock was being relentlessly clobbered from $17 down to $6, numerous company executives (5 or 6 insiders) persisted in buying more shares for themselves - 120k shares, more or less. Depending on the price they payed one could guess that, at an average cost of say $10 a share, this was effectively putting $1.2M of their own skin into the game. Always a good sign, of course.
I encourage you to do your own due diligence, of course, before buying IAG or anything else I may research and discuss. And if you dig deeper than I and uncover something interesting, please don't hesitate to post your comment or send me an email: tsiTrader@gmail.com
Keep in touch!
John
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Sounds like another CGR. Good luck with that one.
ReplyDeleteThanks for all your study, John, and in particular for this piece about IAG. I never thought the $HUI could fall below 340, but it did.
ReplyDeleteI am confused on the A-B-C-D waves. Was gold's A top in Nov '11, Feb '12, or Oct '12? You are a technician in this area so maybe you can give readers an answer.
I felt we had a B bottom in May '12, hence a C start, but it's murky to me. Has a C ever begun with as much chop? Where are we in the daily and intermediary gold cycles?
Anon - CGR and the rest of them are just a matter of time and patience.
ReplyDeleteDear John,
ReplyDeleteHAHAHA I have always wanted to write that. I remember the old sitcom.
Anyway,
Thanks for your sharing your fantastic research!
I am absolutely sick of trading in and out and am ready to go back to good ole investing.
I am looking heavily into GCR and IAG.
I had no idea IAG paid such a hefty dividend.
Learning this information tonight makes me very exited. What a great experience it would be to get in at the bottomish and hold for dear life. Long enough to collect that 3.8%
have a great weekend
Hi John, whats your opinion on reverse split of nugt, due on 1.4.2013??
ReplyDeleteare you still going to keep holding same. appreciate your kind opinion and analysis.
thanks God Bless.
Anon - NUGT opinion: Honestly, I have no opinion. I have read that
ReplyDeletethey have quite a number of ETFs scheduled for splits of various
sorts, besides NUGT.
aklaunch - I hear you about the experiences of trading vs. investing. For myself, if I am really paying attention I can do well with my trading skills - getting in and out of trades. But when I am only half-heartedly trying and my focus is mostly diverted to other interesting things, such as spending months on end writing code, indicators, strategies and so on, I can wake up to find myself on the wrong side of the trade.
ReplyDeleteWhat I have always held as a truth is that if one is trading/investing in a bull market and positioned in the direction of the bull, timing mistakes get corrected with patience.
In other words, if one is trading/investing in the direction of the bull there rarely are times when one will lose money if they are willing to hold until the bull brings price back to them at a profit.
Heads Up - the ABCD wave analysis has very well defined and followed rules for identifying each wave.
ReplyDeleteI have studied this in gory detail - literally a single day at a time, a single daily and weekly cycle at a time, and a single A, B, C and D wave at a time. I confidently understand how this entire bull has been structured, how every puzzle piece fits the next and what the rules are for explaining what is happening the entire way.
Having said that, I can tell you that gold's price behavior in 2013 is screwy, not consistent with anything in the previous 11 years. Which is to say that it does not fit the mold nor the rules that have consistently defined the entire bull.
There are various explanations that appear reasonable for this but my hunch is that we will not conclusively know which explanation is correct until well after the fact. At this time I view each explanation as speculative, in other words.
I continue to seriously doubt the bears are going to be able to dunk gold below 1523. But, should it happen, that would rephase the Dec 2011 D-wave bottom to this new 'upcoming' low.
In agreement with your understanding I believe we are in the C-wave. Whether we are continuing or have already concluded this C-wave's first intermediate cycle - should it be determined to be the longest (bloated) intermediate cycle on record, I don't know. The length is very suspect and more disturbing is the utterly insane collection of right and left translated daily cycles.
Finally, another reasonable explanation is that Dec. 2012 marked the end of this C-wave's first and correctly right translated intermediate cycle.
And then, coinciding with Ben's announcement of QE4 around Dec. 20 or so, the gold market was manipulated by forces of sovereignty status for the purpose of accumulating large tonnages of physical gold. This effectively made the second intermediate cycle of this C-wave left translated. Very very very strange.
Whatever the true explanation, I sincerely expect gold to get past this aberration and return to following its instinctive free-market rules.
Based on what Gary at SMT is expecting test of the all time highs in gold in the next 2-3 months? I am curious. Do you share his opinion John?
ReplyDeleteI find this chart amazing. http://scharts.co/Y54l1s
ReplyDeleteWhatever you see in this chart , you must admit it's extreme.
Hi Bob - thanks for the excellent link to $BPGDM.
ReplyDeleteThe reading is indeed extreme and in the contrary
sense is incredibly bullish for future miner price
movement. Because of the way this indicator works
I strongly suspect we will see miners make their
move off the bottom long before the $BPGDM begins
to rise. But heck, let's both watch it and compare
notes later about *this time*, OK?
Anon - gold retesting $1900+ in 2-3 months? I guess I have not been thinking that far ahead but since you mention it, that sounds extremely likely to me.
ReplyDeleteIntermediate cycles in gold tend to last about 4.5 months and are usually right translated - meaning they do not top until after 2.5 - 3 months. As we appear very likely to have concluded, or worst case are about to conclude an intermediate cycle, the timing part of the statement makes excellent sense to me.
The price consideration of retesting the old highs implies that the consolidation phase since the C-wave top in Sept 2011 has finally run its course and price will now resume its upward ascending trend ie bull market.
Logically, what should we see in place for this to be possible? In other words, what clues should exist in the investing environment to prepare gold for an explosive and decisive breakout of this massive consolidation?
Well, ideally we would like to see sentiment absolutely destroyed. We would like to see that investors are totally worn out, disgusted, have sold their positions and will become buyers at a later date to fuel the rocket ride higher.
We would also like to see the smart money Commercial traders reverse their positioning from hedging aggressively with shorts to being nearly flat out long. We would also like to see the dumb 'Managed Money' traders way out on a limb holding tens of thousands of short contracts with no bullion in their pockets to exchange when closing their trade. ie we would like to know that there is high octane fuel already in the tank, ready for the rocket when the ignition button is pushed.
And to bolster the conviction of this break out we would like to see some damned compelling fundamental data to support the smartest money to stay with the trade, even when second thoughts may arise. This kind of data may include the Fed's conviction to continue printing like crazy, a confirmation that a destabilizing world currency crisis may well be just on the horizon (check out the Yen and British Pound for early chart examples that this has begun), and of course many other considerations such as the relative availability of bullion in tonnage, the execution of master plans from sovereign nations preparing to replace the US Dollar as the World's Reserve Currency with a currency of their own liking, and so on.
Finally, there usually is a point where the situation for both bulls and bears is 'do or die'. Downward and upward momentum is flat (quite literally the definition of consolidation). Sentiment reaches an extreme. If the bears are to prevail at this point they have to pull a rabbit out of the hat and somehow make sentiment even more extreme. But the truth is they are out of tricks. Meanwhile, the bulls have to patiently chip away at the resolve of the bears by making it increasingly clear that price will not be allowed to go any lower.
As this dynamic unfolds and the bears begin to seriously wonder if they can make any more progress in taking price lower - this is just a blink of an eye before the upward explosion in price. Why? Well, because the bears will begin to realize they are now on the wrong side of the trade. As they begin to cover their shorts a whole lot of little ants get a clue where the honey is hiding and begin to front run the bears - piling on longs to take advantage of the wounded bears. In fairly short order the bear finally loses control of the ball and everybody piles in long. Price explodes higher, day after day.
Forgive me for rambling on, but yes, now that I think about it, the cards on the table seem perfectly prepared for gold to make a spectacular retest of the all-time highs in the next few months.
"Anon - gold retesting $1900+ in 2-3 months? I guess I have not been thinking that far ahead but since you mention it, that sounds extremely likely to me."
DeleteJohn, i think that you are very very much wrong in your timing. Gold is not going anywhere (up up up) until several months later in the year.
Anon - I really like it when someone takes the time to write
Deletea comment, remember accurately what I have written so that the
context is clear, and then tells me that I am dead wrong.
Of course,I am being sarcastic. Without making an argument about
"why" I am dead wrong there is really nothing to talk about,
to discuss. You are certainly entitled to disagree with me but
if don't tell me why you disagree, your comment means absolutely
nothing to me.
Do you have any idea how many people out there do NOT think gold
is going up to $1,900 in 2-3 months? That right, trillions. So what?
Good Stuff, John.
ReplyDeleteIAG looks very cheap at these levels.
John --- would appreciate your opinion -- if IAG is the "most" undervalued of the HUI stocks -- which of the others in the index would you "eyeball' as being #2 and #3 most undervalued stocks?? Thanks KC
ReplyDeleteKC - I looked very carefully at all the data I have for each of the 16 HUI stocks to try and give you a decent response. Not sure in which order I would put these, but the next two "most" undervalued seem to be CDE and HMY. 77% and 66% of Book Value is damned cheap. IAG is now at 68% of Book Value.
Delete2013E earnings per share for HMY are projected to improve by 51.6% over 2012E earnings. For CDE the same projection is (incredibly) 300%.
HMY pays a 1.8% dividend. CDE pays 0% dividend. Both companies have about 10% of the value of their stock price in CASH.
Where both seem to fall down, and no doubt this is reflecting the skepticism in their current extreme undervaluation, is that their Net Profit Margin, Return on Equity and Return on Investment ratios are decidedly on the low side. These metrics are calculated exclusively on past performance so I would encourage you to do a little study to determine if these kind of figures are likely to improve in the future. Also, their debt to equity ratios are really excellent.
My personal bias is to recognize that HMY is an ADR which means that its earnings are in another currency (South African Rand, but I would not swear to that as fact) while CDE earnings are denominated in $$$. My point is that HMY could do well but if vs. $$$ their currency does not, earnings will be exaggerated one way or the other. I also favor CDE as it basically a silver miner whereas HMY mines gold.
Hey, hope this gives you an idea where to look next.
John,I'm a little late on this topic. Your IAG analysis looked/looks sound. What has PM investors in a funk is the seemingly mindless selling of almost anything PM, while the general stock market goes on a relentless run. Some say there is little or no manipulation involved. I for one can't believe it. Noticed that the worst performing PM ETF for some time, GLDX is at least today out performing GDX. Maybe it is just so oversold a relative bounce is due. I guess the IAG call will prove itself one way or the other on this initial correction from the big bounce. It appears patience is golden in this arena.
ReplyDeleteHi Rick - the forces are very polarized and I kind of expect things to be
Deletevolatile (ie inconclusive in the short term) while the bulls and bears try
to figure out who is bet on the new trend to follow. After gold reached its
low last May investors where treated to rather violent whip saws for at least
a couple of months. We could well see this happen now - with gold even trading
below its recent 1554.3 low next week. But in the end I am confident of the
outcome and as you said, patience is golden.
John
ReplyDeleteA most interesting study,and tempting for IAG stock purchases..Any AIG option you would recommend?
Also,I heard a lot about Newmont recently.Apparently,it is in a somewhat similar situation (?),and
being a giant in the field,investors would apparently be more attracted by it...May I ask your opinion?
Thanks Jean-Pierre
Hi Jean-Pierre - thanks for your comments/questions.
ReplyDeleteI'm not a fan of playing options so perhaps someone
else out there will offer their thoughts.
Newmont is, as stocks go, a gigantic slug. It has traded
nearly all of the past 10 years in the relatively narrow
range of $35. Presently it pays the largest dividend of the
16 HUI index stocks at 4.30% and perhaps that accounts
somewhat for its 'stability'. Its current and 2013E P/E
ratio is right around 10, earnings projected to grow in
2013 by 12.1% 1.4X book value, 8% of share price is backed
up with CASH, and net profit margin is a respectable 22.75%.
The stock does not interest me but somebody out there likes it!
Thanks for the work you do, John.
ReplyDeleteWhat do you make of the cummulative selling on strength in NEM, ABX, and GG ($275M) as reported on the WSJ's money-flow data center? Something's up. Do you find a rational explanation?
Heads Up - hummm.... that is interesting information that I was not thinking about. Thank you for sharing that data.
ReplyDeleteWell, I've been thinking about doing a post about gold this weekend and maybe I should do it somewhere along the way.
To answer your question straight up, yes I have a rational explanation. I could show it better with charts but my response is twofold.
One, the trend line of the current daily cycle has not been broken yet. That trend line is so relatively flat that price is going to have to trade lower than around $1560 to break it.
Two, and this is what I have been much more focused on, the TSI has made another impossibly steep configuration that is begging to be relieved by a fall in price and a trend line break SELL signal.
Just past the middle of January everyone was getting deservedly excited about gold's price movement but I did not like what the TSI told me and could not share in the bullish rejoicing. What we currently have is almost literally the exact same setup as in January. And for that matter, the setup towards the end of last November was nearly the same as well.
The January setup was a bit puzzling to me as I could not find a single example of it in the entire gold bull...but intuitively I knew it was more a trap than a gimme.
This daily cycle's low is $1554.3 Should price swoon soon, as I have every reason to believe it will, we will possibly take out this low, thus defining a left translated and failed daily cycle that hopefully is the absolute end of this pain and suffering. That is, this scenario would be the ideal opportunity for a brand new daily AND intermediate cycle to begin.
john, what i was seeing was a nice trend line break and a zero cross over to the upside. So you are pointing out that we have not gotten a confermation of a trend line break on the daily cycle in conjunction with a confermation of a right translated cycle . now we are entering the timeing band for a cycle low, this is what is causeing consern?
ReplyDeletei jumped out at 1670 after being run over so many times. Now i have a little proffit on this last entry and will be very happy to flatten out again and wait for the next set up .
jefftheflea
Hi Jeff - I am making a couple an assumption that, in hind sight, may not
ReplyDeleteprove to have been true, but is at this time very reasonable.
The assumption is that gold's cycles are working AND that the lows of 2/21
and 3/8 define the trend line of this daily cycle that remains to be violated
before we can move on.
What could go wrong with this assumption? Well, perhaps the lows of 2/21 and
3/6 and later matched on 3/14 define the trend line of this daily cycle. If
true, then the low on 3/8 provided the required breakage of this trend line
and we have been good to go for a week already. The reason I find this explanation
difficult to swallow is that it would put the daily cycle concluded at just
11 days. I got totally fooled in June 2011 when the final DC before the parabolic
run came in at a mere 14 days...as I had never seen this in the entire bull.
The point I was trying to make about the TSI is that it has risen from -90 to +20
in a nearly vertical manner these past 17 trading days. At this point it is reasonable
to conclude that this situation is getting old and begging for a change.
But I'll tell you what Jeff - and I apologize for being wishy washy this time - the
traffic on my website overnight is exploding. Literally exploding. I have seen this
before just after I have an article published by a major publisher. It explodes for
a couple of days and gradually dies down.
But this is different. I have not had a new article published for 6 or 7 trading
days now. This traffic is completely out of the blue and I have NEVER seen this.
The explanation, of course, is Cyprus. Readers are somehow someway finding my article
about IAG on theDailyCrux and hitting it - though it is buried far from their front
page. Really incredible to watch the hits as Americans wake up this morning as start
looking for good ideas to play on Monday.
Well, ... actualy, Daily Wealth headlined your earlier story just this morning.
ReplyDeleteBetween The Daily Crux, and Cyprus, and Rick Santelli, I feel like a firefly being shaken in a glass jar. When that happens, I usually just buy gold and volatility. Except with the Bernanke bubble, I think it is just a pullback blip; unless my ATM stops working. Geeeehz!