Many investors sell their losers in December to claim capital losses for tax purposes. This selling pressure can turn cheap stocks into even greater bargains, making the month a good time for value investors to go prospecting.
Let’s screen then for stocks showing losses of 15% or more year-to-date. To reduce risk, let’s narrow the list down to companies with a market cap over $1-billion and a consensus buy from analysts monitored by Zacks Investment Research.
Of the group meeting these criteria, what stands out is the large number of gold stocks: B2Gold Corp. (-32.5%), Yamana Gold Inc. (-28.5%), Kinross Gold Corp. (-26%), Agnico Eagle Mines Ltd. (-25%) and Barrick Gold Corp. (-18.5%).
Can such gold stocks recover? Perhaps they can, because:
1. The industry is now going through a consolidation phase that could lead to more companies taken over at higher prices, like the premium Newcrest Mining Ltd recently paid for Pretium Resources Ltd;
2. If governments move to regulate and tax cryptocurrencies, gold will have less of a rival as a safe-haven asset;
3. With high inflation, negative real interest rates and growing geopolitical tensions between the superpowers, the world may be moving into a more volatile phase, providing the kind of environment for a rotation into gold.
So, over the past week, I’ve accumulated some shares in Yamana Gold. What first drew my attention to the company was Benj Gallander and Ben Stadelmann, co-editors of Contra the Heard Investment Letter, adding Yamana to their portfolios in July.
They point out that the cost of production at its five mines is low, an all-in-sustaining cost of US$1,041 per troy ounce. Moreover, debt has been cut by over half since 2019, and what remains is at 2.63% interest with no principal due until 2027.
Add Gallander and Stadelmann: “All of its projects have posted positive exploration results, meaning the mineral resource bases will be expanded and mine lives extended.”
So, even if gold prices fail to rise, there are company-specific reasons to invest in Yamana, notably lower costs, solid balance sheet and rising output. The current price of the stock is about the same as what the two Contra Guys paid.