After a downward summer for the price of gold and gold mining stocks in general, investors may consider adding Goldcorp (NYSE:GG) stock to their portfolio for the rest of the year. There are several long strategies in GG stock that could lead to impressive profits. If gold recovers, a similar bounce in miners like GG is likely to reward investors well.
With a holding of mines in both North and Latin America, Goldcorp is the largest Canadian gold miner by market capitalization. GG operates in the precious metals and minerals industry; some of its competitors include Barrick Gold Corp (NYSE:ABX), Newmont Mining Corp (NYSE:NEM) and Franco-Nevada Corp (NYSE:FNV).
The fundamentals behind GG stock have improved considerably in recent years. In fact, in March 2018, its first quarterly dividend for the year was declared at 2-cents-per-share. Investors seem to have much more confidence in GG stock, as they believe in executive management’s ability to further clean up its balance sheet, grow Goldcorp’s net-asset-value-per-share and decrease costs to boost margins.
Macro drivers, including political developments and cultural affinities for gold in various parts of the globe, as well as micro drivers, such as company fundamentals and technical analysis, both affect the stock prices of gold miners such as GG. It is a generally accepted view that over the long-term, the price change in mining companies often leads that in gold — one of the most coveted metals in the world that has been a store of value for thousands of years.
For many investors, gold is an essential part of an investment portfolio, both as a protector against inflation and as a “diversifier” in the event of a correction in the stock markets.
No one seems to like gold right now as the precious metal has not performed well in 2018. Gold initially showed volatility around the $1,300-per-oz. level. With the strength in U.S. economic numbers as well as the U.S. dollar, in part due to the currency crisis in emerging markets (including the near-collapse in the Turkish lira and Argentinian peso), Gold has recently dipped below the $1,200 level. The Goldcorp stock price has also fallen through the summer months amid lower gold prices.
GG’s 52-week range has been $10.10 (Sept. 5, 2018) — $15.55 (Jan. 16, 2018). An increase back to $10.50 would start stabilizing the technical chart and the indicators, and it could enable GG stock to reach and exceed $12.
If you are also of the opinion that a relief rally in gold and gold miners is due, you may want to add some glitter to your portfolio through investing in Goldcorp stock. Depending on individual portfolio allocations and risk/return profiles, here are the three types of trades set up for Goldcorp (prices are based on GG stock’s closing price of 10.20 on Sep. 6):
3 Bullish Strategies on GG Stock
1. Buy 100 shares of Goldcorp stock at a limit price of $10.20. You should expect to hold this long stock position for up to one to six months for an approximate 8-10% gain. You may consider placing a stop loss at about 3% below your entry point.
2. Use a covered call whereby you would buy 100 shares of Goldcorp at a limit price of $10.20 and at the same time sell a GG Jan 2019 $10 call option, which currently trades at 90 cents.
This call option would stop trading on Jan. 18, 2019 and expire on Jan. 19.
Assuming you would enter this covered call trade at the closing prices on Thursday, Sept. 6, at expiry, this trade would break even at a GG stock price of $9.25 and the maximum return would be $6 at a price of $10 at expiry (excluding trading commissions and costs).
3. Sell a Jan 2019 $10 put option with a limit price of 64 cents — its closing price on Sep. 5.
This put option would also stop trading on Jan. 18, 2019 and expire on Jan. 19.
Assuming you would enter this put selling strategy at the closing prices on Tuesday, the upside is that you keep the premium as long as Goldcorp stock closes above $10 when January options expire (excluding trading commissions and costs).
The downside is that if GG stock trades below $10 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $10-per-share.
At expiry, this trade would breakeven at a GG stock price of $9.36.
The Bottom Line on Goldcorp Stock
I believe a rebound in gold and gold miners, including GG, is coming. However, as prudent investors, it is always crucial to maintain a clear risk/return profile. Thus, if the rebound does not happen, a test of the previous lows could be the next leg down.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
