Published: March 3, 2025
By: Philip MacKellar
Buy low and sell high. Sounds easy … right? Well maybe, but it is difficult to buy in the grips of a protracted corporate turnaround, sectoral downturn or bear market for stocks. Not only that, but it is hard to sell when the good times are rolling, the momentum is strong and investor optimism pushes the short sellers, bearish analysts and negative thoughts aside.
To buy low and sell high, investors need to be comfortable making contrary calls, investing against the crowd and waiting a long time for markets to turn from bearish to bullish or vice versa. Between 2014 and 2021, we sporadically purchased a handful of gold and precious metal companies. At the time, few other investors were interested in miners. The commodity price environment was in a slump, corporate valuations were low, and even when insiders loaded up on their own stock, the analyst community yawned. Many organizations at the time were in survival mode as they cut costs, divested assets and rightsized their balance sheets.
Yamana Gold Inc. was the last miner we added to our portfolio during these doldrums. It first landed in our portfolio in July, 2021. Less than two years later, the enterprise was acquired by Agnico Eagle Mines Ltd. and Pan American Silver Corp. We continued to own these two thereafter.
Over the past 18 months or so, the reverse has been true for the gold industry, and the market has once again proven it is cyclical. To sell high, we started trimming some of our gold stocks in 2024. Then, in early February, we closed out a position and sold our final tranche in Agnico Eagle at $141.19. This investment generated a capital gain of 104.9 per cent, plus dividends. That result eclipsed the returns of the TSX Composite and S&P 500 over the comparable period.
The decision to sell was not an easy one as there are bullish factors underpinning the name. After running into resistance around the $124 level twice in late 2024, the ticker finally broke higher. Since then, it has appreciated sharply. This momentum, and the rally in the price of gold, means there is a compelling argument the shares could run further.
Gold also loves uncertainty. Right now, there is plenty of that as U.S. President Donald Trump’s administration shakes up (or in some cases shatters) the status quo. Given these factors, it would not be surprising to see the shiny metal jump to more than US$3,000 an ounce.
Agnico Eagle is an industry leader, too. It is an excellent operator, does business in geopolitically stable jurisdictions and has enviable growth prospects. The financials are healthy thanks to low all-in-sustaining-costs of US$1,239 in 2024, steadily expanding gold production and a solid balance sheet.
However, we sold based on the following factors. First and foremost, buy low and sell high. Agnico is trading at an all-time high, the valuations are no longer cheap and, on certain metrics, it looks expensive. On a related note, the stock was trading just shy of the analyst community’s consensus 12-month price target of $145.33 when it was jettisoned. For those who are interested, the consensus is now $148.18.
On the topic of valuations, some will argue that mining stocks are lagging the underlying commodity, and miners are cheap based on forward PE or PEG ratios. These arguments have some merit as the broadly diversified mining ETFs (the GDX and GDXJ) are lagging the price of gold over a three- and five-year period. This said, these ETFs have done a lot of catching up in the past year. Moreover, Agnico Eagle is up roughly 110 per cent in the past year compared to gold, which is up about 43 per cent.
As for cheap pro-forma, such as looking-forward PE or PEG ratios, these metrics must be weighed against expensive-looking trailing-12-month valuations and considered in that light.
Agnico Eagle’s high insider selling was another reason to exit. According to our friends at INK Research, executives and directors offloaded $82.5-million in the 12 months prior to our February sale. Though mining insiders are often net sellers, the amounts here are huge. This is concerning given there is a robust argument that insiders are the “smart money.” A lot of this selling was related to options, stock-based compensation, etc., but regardless, it is clear those most in the know value cash more than they value ownership in their own enterprise.
Finally, on a portfolio level, our exposure to gold remains decent thanks to holding other miners. By slowly offloading these positions we are keeping skin in the game while locking in gains, and most of all, sticking to the age-old maxim: Buy low, sell high.
Philip MacKellar is the general manager at Contra the Heard investment newsletter.