Knowing how top institutional holders move on gold stocks can give a useful hint to investors, helping them implement appropriate strategies. This is because institutional holders do thorough research on their targets before acquiring, selling, opening a new position or selling out the shares.
Donald Smith & Co., a New York-based investment management firm with a $2.72 billion portfolio of 61 equities as of Dec. 30, focuses on deep value stocks. That is, it invests in out-of-favor companies that are in the lowest decile of price-to-tangible-book-value ratio. These stocks have been found to deliver considerably higher returns than the broader market, according to the firm's website.
During the fourth quarter, Donald Smith (Trades, Portfolio) & Co. Inc. decreased its stake in one Canadian gold producer and increased its position in another.
Smith decreased its holding in Yamana Gold Inc. (AUY, Financial) by 11.6% to 19,317,026 shares, or 2.04% of the company, as of Dec. 31.
It also increased its position in Iamgold Corp. (IAG, Financial) by 3.8% to 32,166,891 shares for a 6.89% stake as of Dec. 31.
Donald Smith (Trades, Portfolio) & Co. is one of the largest institutional holders of both companies. Evidently, it has greater confidence in Iamgold in a changing gold-price environment, judging by the amount it has invested. Iamgold as a price-to-tangible-book-value ratio of 0.58, and Yamana Gold has a price-to-tangible-book-value ratio of 0.65, while the industry median is 1.94.
The inertia of the Federal Reserve may pressure gold prices upward as stable interest rates for an extended period of time enhance expectations for a lower real interest rate environment. In such a scenario investment in gold is more attractive than in bonds. After four hikes in 2018, the Federal Reserve decided to leave the federal funds rate target unchanged at 2.25-2.5% on Jan. 30. The Federal Reserve said it will stay patient on interest rates, suggesting it may take a long break before increasing interest rates again.
Iamgold produces gold from mines in Burkina Faso, Québec and Mali. For 2019, the company has targeted total attributable gold production of 810,000 to 870,000 ounces at $765 to $815 an ounce total cash cost and $1,030 to $1,080 an ounce AISC.
The profitability of its operations is slightly higher than the industry. In fact, Iamgold has delivered an Ebitda margin of 27.6% compared to an industry median of almost 24% for the 12 months through the third quarter of 2018.
GuruFocus assigns the company a profitability and growth rating of 5 out of 5 and a financial strength rating of 7 out of 10.
Wall Street has issued the company an overweight rating, meaning that analysts foresee that the stock will outperform either the market or the industry. The average target price is $5.25 per share, reflecting 50.4% growth from the share price of $3.5 at close Friday. The stock has a market capitalization of roughly $1.64 billion, with approximately 466.6 million shares outstanding. The share price has decreased 34% for the past year through Feb. 8 and is below the 200-day simple moving average line but almost on par with the 100- and 50-day SMA lines.
The stock's 52-week range is $2.75 to $6.33. The price-book ratio is 0.59 versus an industry median of 1.74 and the EV-Ebitda ratio is 4.34 versus an industry median of 9.3.
The 14-day Relative Strength Indicator is 50.88, suggesting the stock is neither overbought nor oversold.
Yamana Gold produces gold from assets in the Americas. The company also produces silver and copper, but gold is the main commodity. In 2018, it contributed 1,041,300 ounces of equivalent gold to commodities markets.
The profitability of Yamana Gold’s operations is below the average of the industry. In fact, over the past 12 months through the third quarter of 2018, the miner has delivered an Ebitda margin of 20% while the industry median stood at 24%.
GuruFocus assigns the company a profitability and growth rating of 5 out of 5 and a financial strength rating of 7 out of 10.
Wall Street has issued an overweight rating on the stock, with an average target price of $3.46 per share, reflecting 25% upside from the share price of $2.8 at close Friday. The stock has a market capitalization of roughly $2.65 billion, with approximately 949.34 million shares outstanding. The stock has fallen 10% for the 52 weeks through Feb. 8 and trades below the 200-,100- and 50-day -day simple moving average lines.
The stock's 52-week range is $2 to $3.53. Its price-book ratio is 0.66 versus an industry median of 1.74, and the EV-Ebitda ratio is 6.95 versus an industry median of 9.3.
The 14-day Relative Strength Indicator is 59.27, suggesting the stock is neither overbought nor oversold.
Disclosure: I have no positions in any securities mentioned.
