Trade of the Day: Gold Fields (GFI) Stock Offers a Contrarian Opportunity
While the precious metals complex largely enjoyed a positive session on Monday thanks to gold’s spot price rising, South African gold miner Gold Fields (NYSE:GFI) suffered the opposite trajectory: GFI stock stumbled and quite badly, losing roughly 5% of market value. Driving the sentiment downward was the company’s announced acquisition of Canada’s Osisko Mining (OTCMKTS:OBNNF) in a deal valued at $2.16 billion.
Investors seem to believe that the deal is too rich for Gold Fields, which will use cash to acquire all outstanding shares of Osisko at a price of $4.90 per share, according to BNN Bloomberg. That comes out to a 66.7% premium to Osisko’s closing price on Friday.
Another factor that may be weighing on GFI stock is the current valuation of the miner. Right now, the equity trades at 3.08x trailing-year revenue. That’s a bit higher than the 2.73x sales multiple for the gold mining industry overall.
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Still, the acquisition may be a case of the good news outweighing the bad. For some time, Gold Fields has been looking to diversify away from its home nation due to the difficulties involved in extracting precious metals from the world’s deepest mines. With the buyout, Gold Fields will enjoy full ownership of Canada’s gold project as opposed to the current 50/50 arrangement with Osisko.
Fundamentals Shine Brightly for Gold Fields
Another reason to keep close tabs on GFI stock centers on outside fundamentals. One of the biggest issues recently centers on the collapse of the Japanese yen carry trade. This financial strategy involved borrowing money in yen to acquire other higher-yielding currencies. The trade worked because historically, the yen saw extremely low interest rates.
However, the Bank of Japan decided to raise rates in order to combat the negative acceleration of the yen. Suddenly, the once-dependable trade was no longer dependable. Back home, investors are anxiously awaiting guidance from the Federal Reserve. After years of elevated borrowing costs, they’re looking for relief. That could come in the form of a dovish monetary policy.
Should that materialize, GFI stock would look much more attractive. First, if the yen rises in value, the dollar could weaken in comparison. Second, the Fed lowering the benchmark interest rate would likely be supportive of precious metals.
If so, gold prices may continue marching higher, making Gold Fields’ Osisko buyout look intriguing.
Trade of the Day: Take a Stab with GFI Stock Call Options
Those interested in a speculative opportunity may consider our Trade of the Day: buying GFI stock call options. Specifically, the 2025 Jan. 17 $15 call looks relatively attractive thanks to high open interest, suggesting broader demand from the smart money.
On a technical note, GFI stock found itself on Monday sitting roughly on its 200-day moving average. Because the 200 DMA is a common gauge for market health, it’s possible that shares could bounce higher from here. Previous sharp declines in GFI yielded a quick bullish response. The same might happen again.
Finally, the obvious point: Monday’s downturn made the aforementioned $15 call much cheaper. Frankly, it appears that the selloff is an overreaction to the terms of the Osisko deal. With cynically positive fundamentals affecting the gold market, GFI stock may be an attractive pickup.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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