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Preparing For A Drop In Goldcorp Stock


Goldcorp has been on a tear this year, and is currently one of the top five names in our site's daily ranking by potential return net of hedging cost.

Nevertheless, the stock has a bearish equity summary score by Thomson Reuters StarMine, and Seeking Alpha Pro contributor Itinerant Musings says it's time to short it.

For Goldcorp bulls who want to stay long, but limit their downside risk in case the bears are right, we present two ways of hedging the stock.

Did you forget about those golden nights? -

Goldcorp Miners on a break. Photo via the company

A Divergence Of Views On Goldcorp

Since we focus on hedging, we thought we'd try a screen to identify names investors might want to consider hedging. So, using Fidelity's screener, here are the inputs we entered:

  • "Very high" Year-to-date performance (Fidelity quantifies that, rather precisely, as 32.24% and above).
  • Optionable (so they can be hedged).
  • Average volume over 1 million shares per day.
  • Equity Summary Score of "Bearish" or "Very Bearish" from Thomson Reuters StarMine (in a nutshell, that's an aggregate of analysts' rankings, weighted by the accuracy of the analysts. For a few hundred more words elaborating on that, click the link).

Like viewers of the Aristocrats, you already know the punchline: one of the stocks that came up on this screen was Goldcorp (NYSE:GG).

GG Price chart via YCharts

The main reason it caught our attention was that, as of Tuesday's close, Goldcorp was one of the top 5 names in the Portfolio Armor website's daily ranking. That site uses price history (including the year-to-date performance) and option market sentiment to ballpark a potential return for optionable securities over the next 6 months. Then it subtracts hedging cost, and ranks securities by their potential returns, net of hedging costs.

Since price momentum is a component of the ranking, occasionally one industry gets over-represented at the top of the ranking, and currently, that industry is gold. In addition to Goldcorp, AngloGold Ashanti (NYSE:AU), Kinross Gold (NYSE:KGC), and Newmont Mining (NYSE:NEM) appeared in the top 5 on Tuesday.

So the market has been bullish on Goldcorp year-to-date, and our site is currently bullish on it, but StarMine analysts are bearish on it. As is Seeking Alpha Pro contributor Itinerant Musings, who argues it's time to short Goldcorp. If you're long the stock, presumably, you're bullish on it. If you want to stay long, but limit your downside risk in the event the StarMine analysts and Itinerant Musings are...