On April 8, 2012 (article found here), we recommended Agnico-Eagle Mines (AEM). At the time, we were basing our first individual recommendation of gold stocks on our Gold Stock Indicator. Our Gold Stock Indicator had been in a declining trend since November 2010 suggesting that no purchase of gold stocks should take place. However, once our Gold Stock Indicator declined below the long-term buy indication in early April 2012, it was a clear signal to start acquiring gold stocks.
The reversal of the declining trend has been reflected in gains in the gold stock sector across the board. In our initial analysis of Agnico-Eagle Mines (AEM) we projected that, based on Edson Gould’s Altimeter, the stock price was likely to increase from +100% to +175% over a two year period. Since our recommendation on April 8th, Agnico-Eagle has gained just over +45%. Our experience indicates that there will be many opportunities to re-acquire Agnico-Eagle at better relative prices.
According to Value Line Investment Survey, Agnico-Eagle trades at a fair value of $39. The current price of Agnico-Eagle, at $49.76, is 27% above the fair value price. Stocks that are selling above fair value and that have had above market returns should be sold. Yahoo!Finance and Morningstar.com indicate that Agnico-Eagle is operating at a loss for the trailing 12-months. We will re-consider Agnico-Eagle when the stock approaches an undervalued range based Edson Gould’s Altimeter.
Those not interested in following through with our sell recommendation can feel comfortable knowing that Agnico-Eagle (AEM) is a reasonable holding until our Gold Stock Indicator crosses above the long-term sell level. So far, AEM has a 45% downside cushion since our investment observation. It should be noted that the stock faces significant upside resistance at $52 and $60.