What are we looking for?
Canadian precious metal stocks looking attractive after recent price declines.
Gold and precious metal stocks are one part of the market that has suffered an outsized decline over the past months. The S&P/TSX composite index is down about 1 per cent over the past three months while the S&P/TSX global gold index is down almost 15 per cent in the same period. Gold stocks have been under pressure because of expectations of more U.S. interest rate increases and the corresponding strengthening of the U.S. dollar. As traders digest the relative value of precious metals compared with other investments, a strengthening of gold and silver stocks is possible.
The screen
We will be using Recognia Strategy Builder to search for Canadian precious metal stocks with weak recent market performance combined with strong operating margins and analyst estimates.
We begin by setting a minimum market cap threshold of $1-billion to focus on larger and more stable gold and silver stocks in the Canadian market.
Next, we will look at four-week price performance and focus on companies whose stock has declined by at least 5 per cent in the past month. To focus on companies with efficient operations, we will filter for operating margins of 10 per cent or better. Operating margin is a measure of the profit a company makes on each dollar of revenue – higher operating margins are preferred.
Finally, we will also screen based on analyst consensus recommendations. We will pick only companies with analyst ratings of buy or strong buy.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
Wheaton Precious Metals Corp. tops our list with a market cap of $11.2-billion and a very strong operating margin of 34.9 per cent. The high operating margin is a benefit of Wheaton's business model in which the company acquires precious metals produced by other companies as a byproduct of their main operations. In early May, the company announced first-quarter results that were largely in line with analyst expectations. The company also reported increased gold production revenue.
The highest operating margin on our list belongs to Centamin PLC, the Anglo-Australian gold miner. Centamin's operations in Africa have a very low cost of production, meaning they can operate profitably even when gold prices fall. Their cash production cost in 2016 was just $513 (U.S.) an ounce.
One of the worst four-week performances on our list belongs to Teck Resources Ltd. The stock is down 18 per cent in the past four weeks and 26 per cent in the past eight weeks. In addition to pressure on Teck's gold operations, declining revenue for the company's metallurgical coal business was also a cause of a good portion of the decline.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.