For the past six to nine months the consensus among traders had been that the Federal Reserve would be cutting interest rates this year, and some thought it would be aggressive cutting. However, that narrative may have changed on Thursday as two Fed members noted that the central bank might not cut at all in 2024. This sent shockwaves through the stock market Thursday and Friday.
By week’s end the S&P 500 had fallen1%, the Dow had lost 2.25% and the Nasdaq had declined by 1%.
The Stock – Eldorado Gold (EGO)
After reaching record prices in late 2020/early 2021, gold and other precious metals went through a long, tough stretch which saw investor interest for the sector wane while more glamorous assets took center stage. However, gold and silver have lately recovered their lost luster, with the yellow metal, in particular, roaring to new all-time highs in recent weeks, led by torrid central bank gold purchases and thoughts that inflation will prove stickier than initially expected.
Vancouver-based Eldorado produces gold, silver and base metals (mainly lead and zinc) at several mine sites across Turkey, Canada and Greece. The company completed a number of projects last year and just reached its highest quarterly gold production level in over four years, and output is heading up in a big way in the years ahead.
In Q4, gold production of over 143,000 ounces across all operations increased 11% from the year-ago quarter and rose 7% for the full year, reflecting improvements throughout its portfolio. Total revenue of $307 million in Q4 jumped 25%, while earnings of 24 cents a share beat estimates by 20%. Gold sales of 145,000 ounces in Q4 for Eldorado averaged a gold price of almost $2,000 per ounce sold, with all-in sustaining costs (AISC, a key metric) at $1,207 per ounce sold—obviously several hundred dollars below spot market prices.
Going forward, the company’s growth engine is expected to be its Skouries mine, a high-grade copper-gold deposit in Greece which is scheduled to begin commercial production next year and which is predicted to increase Eldorado’s gold production by 45% through 2027. The addition of Skouries is also expected to boost copper output—a key metal in the worldwide energy transition—making it a bigger part of the firm’s overall production and revenue profile, with copper production pegged at ~20 million pounds next year.
Wall Street sees both sales and earnings growth of around 20% this year, with more 20%-plus growth expected in the years after as the new mine comes online.
Technical Analysis
EGO has largely mirrored gold price movements during the past two years, hitting a major trough in late 2022 along with the metal and rebounding strongly in the first four months of 2023. However, the stock then began a very choppy up-and-down consolidation: EGO dropped to 8.5 by early October of last year, then rallied to new price highs above 13 in November before again turning tail and dropping to 10 in February. However, the buyers have clearly been in control since then, with shares up six weeks in a row and tagging their highest levels since 2017. Stop — 12.7
The Covered Call Trade
Buy Eldorado Gold (EGO) Stock at 15.5, Sell to Open May 16 Strike Calls (exp. 5/17) for $0.70, or a Net Price of 14.8 or less
Static Return: $70 per covered call (4.72%)
Breakeven: 14.8
Covered Call Return (if assigned): $120 per covered call (8.1%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 14.8 or less. (In this case, 15.5 minus 0.70 = 14.8. Or, another example is you could pay 15.4 for the stock and sell the call for 0.60, which also equals 14.8.) For every 100 shares of stock you buy, you can sell 1 call.
For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| JFrog (FROG) | 44.75 | 43 | 36 | April 45 -- $2.90 | $0.80 |
| Robinhood (HOOD) | 15.85 | 18.5 | 13.4 | April 17 -- $0.95 | $1.70 |
| Samsara (IOT) | 38.7 | 34 | 33 | April 40 -- $2.20 | $0.15 |
| Permian Resources (PR) | 16.7 | 18 | 14.2 | May 17 - $0.75 | $1.30 |
| Toast (TOST) | 24.05 | 23.5 | 20 | May 25 -- $1.75 | $1.30 |
| CNX Resources (CNX) | 23.9 | 24.3 | 21 | May 24 -- $1.08 | $1.20 |
The next Cabot Profit Booster issue will be published on April 16, 2024.
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