Alamos Gold In Tight Trading Range, Sets Up For Potential Gains

Key Points

• Alamos Gold is forming a bullish consolidation below an early May high of $14.12, with shares closing within a tight range for the past three weeks.
• Gold stocks rallied in March amid the banking crisis, with SPDR Gold Shares ETF returning 7.92% that month. It's trended lower more recently. 
• Alamos Gold expects operating revenue of $955 million this year, a 16% increase.
• In the most recent quarter, Alamos reported earnings of $0.12 per share, surpassing estimates.
• Revenue of $251.5 million exceeded expectations and showed 36% growth.

Alamos Gold Inc. NYSE: AGI is forming a bullish consolidation below an early May high of $14.12. For the past three weeks, shares have closed in a tight range, with week-ending prices ending less than one percentage point from the previous week. 

That kind of narrow range can signal confidence among investors as they hold shares at a certain level. You also want to see muted trading volume as a stock trades in a tight range, and that’s exactly what’s been happening with Alamos Gold.

This price action can be a precursor to gains, as investors sit patiently and hold their shares. 

A Safe-Haven Rally

Gold stocks began rallying in March, as precious metals were perceived as a safe haven from the banking crisis. The SPDR Gold Shares ETF NYSEARCE: GLD returned 7.92% in March, although it, too, began correcting in May.

Alamos’ current base could mean the stock will offer a potential entry point soon. Shares are trading 2.7% below their 50-day average, and 22.7% above the 200-day line. So far, Alamos stock has corrected 14.7% between peak and trough. That’s a fairly mild consolidation, and falls into the range of what could be called a “flat base” formation. 

Alamos Gold is a Canadian-based gold mining company whose portfolio includes several mines and development projects in Canada, Mexico, the U.S., and Turkey. With a focus on low-cost production and sustainable mining practices, Alamos Gold engages in the exploration, development, and extraction of gold and other precious metals.

The company expects operating revenue to come in at $955 million this year, which would be an increase of 16%. 

Earnings Beat Expectations 

In the most recent quarter, Alamos reported earnings of $0.12 per share, up 140% from the year-earlier quarter. According to MarketBeat’s Alamos Gold earnings data, that topped views by $0.04 a share. 

Revenue of $251.5 million was up 36%, ahead of expectations for $231.55 million. 

Revenue growth accelerated in the past two quarters. Meanwhile, the company’s cost profile, a process that identifies the cost of goods produced, has been declining. It’s basic math: Either higher revenue or lower costs can result in higher profitability, but it’s even better when those two factors are combined.

In the most recent quarter, the company produced 128,400 ounces of gold, exceeding its own quarterly guidance and marking a 30% increase from the year-earlier quarter. That was driven by a significant increase in production from Alamos’ Mulatos mine in Mexico, which the company has been operating since 2005. 

Other Miners Forming Bullish Charts

Alamos is not alone as a top price and earnings performer within the gold miners’ industry. Gold Fields Limited NYSE: GFI is also forming a consolidation, near its 50-day moving average, having peaked on May 4, the same day Alamos and the GLD ETF rallied to highs. 

Gold prices reached a one-year peak on May 3 and are down 4.6% since then. 

Gold miners’ stocks tend to move in tandem with the price of gold, with more significant percentage fluctuations. 

Factors beyond earnings reports can significantly impact gold miners' stocks. For example, economic indicators, such as inflation, interest rates, and geopolitical events stability can impact the demand for gold as a safe-haven asset. Currency fluctuations and cost of production also play crucial roles. 

Miners Tend To Move As A Group

Certainly, there are company-specific developments that affect a given stock, but it’s not unusual to see gold miners move as a group, at least to some degree, for those reasons. 

For example, the largest stock in the industry, Newmont Corp. NYSE: NEM, attempted a rally in early May, but couldn’t muster up the strength to overtake an early April structure high. It’s frequently the case that larger stocks don’t notch the same level of gains as smaller industry peers.

With a market capitalization of $33.41 billion, Newmont has to work a little harder than Alamos, whose market cap is $4.96 billion, to post a significant price gain.

Role For Large- And Mid-Caps

You can look at the two stocks’ returns to verify that: In the past three months, Newmont has returned 0.29% while Alamos has returned 25.07%. 

That’s not to make a general statement that either is necessarily preferable; there’s a role for both mid-caps and large caps in a portfolio, as the two asset classes have different risk profiles. In addition, income seekers may be drawn to the Newmont dividend yield of 3.8%, versus Alamos Gold’s dividend yield of 0.8%.