Top picks 2012: Agnico-Eagle Mines

With production set to rebound and Fed-fueled inflation on the horizon, the gold miner's stock is just too cheap to pass up.

By TheStockAdvisors Dec 30, 2011 9:43AM
Image: Gold (© Comstock Images/Jupiterimages)This post is one in a series in which over 50 newsletter advisors share their Top Picks for 2012.  

By Jack Adamo, Insiders Plus

You probably think I'm crazy, but my top recommendation for the coming year is the stock of a company I don't like and expect to fall 12% to 20%, perhaps more.

The company is Agnico-Eagle Mines (AEM). The reason for my apparent insanity is that the stock is just too cheap. 

Remember: The key to success in investing is your buy price. You can make money in a so-so company if you get it cheap enough and you can lose money in a great company if you overpay.

Agnico-Eagle is better than so-so. In fact, it is usually a solid operator with good assets and a promising pipeline strengthened by disciplined acquisitions. 

I just think management is too generous with its options compensation and too quick to gloss over problems. 

The company is having production troubles at two of its big mines, causing the stock to tumble 57% in the last 12 months. 

That drop will eliminate options expenses for a few years unless the company reprices them. Though possible, that would be very bad public relations. You don’t want to annoy your shareholders after they’ve just taken a big hit. 

Okay, you’ve heard what I don’t like about AE. Now let's talk about what I do like. Agnico-Eagle’s mines are in countries that are politically stable. That may be very important in coming years, as South and Central American countries swing back to the political left. 

Despite its recent production problems, the company should earn $3 a share for 2012, assuming gold stays above $1,250, which is a pretty safe bet. Its price-to-earnings ratio of 12 is the cheapest of the big gold miners. 

But even if AEM misses estimates, several new mines will come on line in the next three years, lifting production substantially. 

Meanwhile, after a recession in 2012, gold prices should soar as the Fed prints money to pay off the parade of unfunded liabilities coming due. In short, production problems or not, repriced options or not, the shares are a bargain.

I’m starting to accumulate shares now because:

•    I could be wrong about the recession and a concomitant short-term drop in gold prices
•    After heavy year-end tax selling, the shares could bounce back in January
•    At this price, recommendations from big brokers or investment media could boost shares.

They’re cheap enough to start buying now. If they fall another 10% to 20%, all the better. Buy more. Two years from now it will all be money well spent. 

Buy Agnico-Eagle Mines up to $40. Take an initial position now and add on pullbacks of 10% and 20%. At those prices it would be okay to overweight the stock.

Steven Halpern's TheStockAdvisors.com offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.


Tags: AEMgold
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