The month of August often opens the way for bargains in the precious metals
and energy sectors. When specific companies and their stock corrects, the
oversold condition can set up some good entry points.
Take Yamana Gold (NYSE:AUY) for example. It recently fell a whopping 50% from
its 52-week high and last week was trading below $10-a-share. As I write this,
it hasn't recovered much and is around $10.36. Look at the 6-month chart on AUY
(source: Yahoo! Finance).
On Wednesday RBC Capital Markets raised its outlook on Yamana Gold Inc. to
"Outperform" from "Sector Perform," citing a positive outlook for gold and the
Canadian company's growth plans. Now that's our first hint about the potential
return here.
In a note to clients, RBC analyst Michael Curran said he viewed the drop in
gold prices in recent months as "the summer doldrums."
"Whether or not last Friday's intraday low of $772/oz proves to be the summer
2008 low for gold, we believe many gold
equities are at attractive entry points for a subsequent seasonal
rally in the fall or later this year," Curran wrote.
As for Yamana, Curran said strong growth plans and liquid gold equities have
led shares to realize higher leverage to the price of gold than several other
large-cap producers. RBC maintained its 12-month price target for Yamana at $17
a share.
Now do the math. If a person bought some shares at around $10, and the share
price of AUY happens to hit $17 over the next year or so, would you be happy
with a 70% return? End of story, and let's hope that those of us who own AUY
have that kind of return on our investment.
