Get the Latest Investment Ideas Delivered Straight to Your Inbox. Subscribe


A Time for Caution, Though Gold Stocks Look Like Good Buys
Contributed Opinion

Share on Stocktwits


Adrian Day While fund manager Adrian Day believes investors should tread cautiously in the market right now, he is upbeat on some gold stocks.

Given our caution on the broad stock market, resulting from relatively high prices across the board, we have relatively few "buy" recommendations. Most of our buys are concentrated on the gold stocks, and even there, many of our limits are below current prices. I do not think one needs to be aggressive in the current environment.

Of course, so much depends on your personal circumstances—all the "financial planning" circumstances such as age, future financial obligations and so forth—as well as what your current portfolio looks like.

If, for example, you do not own very much in the gold space, I should certainly step up to the plate now; start with two major gold royalty companies, Franco-Nevada Corp. (FNV:TSX; FNV:NYSE; 61.27) and Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX; 65.51), top buys on our current list. Both are solid buys now, particularly if you do not already own them. We could see both at lower prices in coming weeks, given the sharp runs they have both experienced over the past three weeks, Franco from $54.77 and Royal from $61.37. Prices half way between recent lows and the current price would be a fair target (i.e., $58.81 for Franco and $63.40 for Royal).

American Capital, Yamana and Sunridge Redux
The acquisition of American Capital Ltd. by another of our recommendations, Ares Capital Corp. (ARCC:NASDAQ), has now been completed. Shareholders received $10.13 cash plus 0.483 of a share of Ares. Most definitely, hold your Ares shares.

To add insult to injury, investors had a Canadian tax withholding taken on the receipt of the Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) purchase rights recently distributed. The rights were over 20 cents when distributed—the value on which the tax was based—even though, because of the convoluted procedure required for U.S. shareholders, they could not be sold at that time. By the time one large custodian finally had the rights free-trading in accounts, the price had fallen to far less than the minimum commission the custodian charges. Through a combination of a cavalier company with an ill-judged plan, a rapacious tax authority, and an incompetent custodian, many shareholders end up with a loss on the distribution of these rights.

Sunridge Gold Corp. added a touch of icing to its liquidation after its assets were acquired in a friendly takeover, with the distribution of a second tranche, of CA$0.03 per share. A third and final distribution will be made once a lawsuit is settled, expected by the middle of the year. It is estimated to be around another 3 cents, though could be higher or lower depending on any expenses.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Franco Nevada, Royal Gold and Ares Capital. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: All of the companies mentioned. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.

Want to read more about Gold investment ideas?
Get Our Streetwise Reports Newsletter Free and be the first to know!

A valid email address is required to subscribe