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.
|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!