Red Light, Green Light: Gold Is In and Banks Are OUT
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Editor’s Note: On March 1, we launched the inaugural TradeSmith Daily issue of Red Light, Green Light, with the overwhelmingly positive consensus that you would like to see it continue. For those who may have missed the first issue, this is where we share the stocks that have recently triggered “sell” signals or “buy” signals in our system. You can access the inaugural issue here for more details.
Our screeners for stocks to avoid and stocks to buy are sending a clear message this week: Banks are out and gold and precious metals are in.
As earnings reports for regional banks started rolling in on Monday, it was a mixed bag that CNBC succinctly captured in an April 17 headline:
One of the alarming takeaways was that, according to CNBC, every bank that reported on Monday revealed a drop in deposits.
So it’s no surprise that more bank stocks are in an unhealthy state and in our Red Zone.
On the flip side, precious metals are shining bright.
Just look at how gold prices have performed so far this year compared to the Dow Jones Industrial Average and the S&P 500:
With inflation cooling but remaining high, the odds of a recession happening over the next year at 57.77%, and folks still wondering when rate hikes will end, precious metals are serving as a hedge against all of this uncertainty.
And thanks to proprietary data from our friends at LikeFolio, we can see that precious metals have been a hot topic on social media.
Mentions of silver coins have spiked in recent months:
So, in this edition of Red Light, Green Light, I’ll walk you through three companies that have entered an unhealthy investing state (Red Zone) and three that have entered a healthy and investable state (Green Zone) over the last seven days.
Note: The information shared below reflects the most recent data at the time of writing. Some data and figures may have changed since.
Red Zone Stock No. 1: TrustCo Bank Corp. NY (TRST)
Market Cap: $567.49 millionTradeSmith Risk Assessment: Medium
Stopped Out: April 18, 2023
🔻 Company Snapshot: TrustCo Bank Corp. NY is the holding company for Trustco Bank, which operates 148 offices in New York, New Jersey, Massachusetts, Vermont, and Florida. The price of TRST has fallen since the spate of bank failures in early March, but the stock was having problems long before then: Over the last five years, TRST has lost more than a third of its value. Though the company has been making shareholder-friendly moves, announcing an increase to its dividend in February and a stock repurchase plan in March, our Health Indicator is saying that TRST’s lower price does not signal a buying opportunity right now.
Red Zone Stock No. 2: Timberland Bancorp Inc. (TSBK)
Market Cap: $219.86 millionTradeSmith Risk Assessment: Medium
Stopped Out: April 17, 2023
🔻 Company Snapshot: Founded in 1915, Timberland Bank is a regional bank with 23 branches throughout western Washington state. Like TRST, TSBK has suffered since last month’s bank failures, dropping about 20% since the beginning of March as of this writing. Besides the fact that regional banks have been the subjects of investor skepticism as of late, Timberland faces another challenge: a potential slowdown in the state economy predicted by the Washington State Economic and Revenue Forecast Council. If economic activity weakens in Washington, so will demand for loans and the size of deposits, which will hurt TSBK’s business. On top of that, insiders don’t appear to have much confidence in their own company as their selling activity has increased over the past two quarters, according to our Money Movers indicators.
Red Zone Stock No. 3: Mid Penn Bancorp Inc. (MPB)
Market Cap: $374.83 millionTradeSmith Risk Assessment: Medium
Stopped Out: April 14, 2023
🔻 Company Snapshot: Mid Penn Bancorp operates in 17 counties throughout Pennsylvania, offering traditional banking services. Before the banking sector started unraveling, Mid Penn announced in December 2022 that it entered into an agreement to acquire Brunswick Bancorp, which Mid Penn said will give it a meaningful expansion “into the attractive central New Jersey market.” While this expansion may benefit MPB over the long term, if regional banks are seeing a slowing in deposits in the short term, adding a whole other regional branch to its operations may not pay off until things stabilize.
Now, let’s jump into our “Green Light” stocks you can consider moving your money toward.
Green Zone Stock No. 1: GoldMoney Inc. (XAUMF)
Market Cap: $119.31 millionTradeSmith Risk Assessment: High
Entry Signal: April 14, 2023
✅ Company Snapshot: Physical gold can serve as a great investment during uncertain times, as we’re seeing gold prices hover around $2,000, up nearly 9% on the year. But one challenge for precious metal owners has always been figuring out how to store and keep their physical assets safe. Enter GoldMoney, which provides custodian and storage services through its GoldMoney.com platform. It also acts as a dealer in the purchase and sale of precious metals, and it designs and sells gold and platinum jewelry. Keep in mind that this is considered a high-risk investment, and with its status as a micro-cap stock, it is more prone to volatile price swings. But as gold prices climb, GoldMoney could be a beneficiary as people start buying more gold and need a place to store it.
Green Zone Stock No. 2: Caledonia Mining Corp. (CMCL)
Market Cap: $303.52 millionTradeSmith Risk Assessment: High
Entry Signal: April 17, 2023
✅ Company Snapshot: Caledonia Mining operates various gold exploration and developmental projects throughout Zimbabwe. It recently reported its full 2022 earnings, which produced several highlights: Gross revenues were $142 million compared to $121 million in 2021; gross profit was $61.8 million compared to $54.1 million in 2021; and 80,755 ounces of gold were produced compared to 67,476 ounces in 2021. Caledonia expects that momentum to continue and provided guidance of 87,500 to 97,000 ounces of gold production for 2023. The company also pays a dividend of $0.56, which is a yield of 3.44%.
Green Zone Stock No. 3: First Quantum Minerals Ltd. (FQVLF)
Market Cap: $17.70 billionTradeSmith Risk Assessment: Sky High
Entry Signal: April 18, 2023
✅ Company Snapshot: If you’re looking for more broad exposure to precious metals and minerals outside of just gold, First Quantum Minerals will fit the bill. In addition to gold, it’s an explorer of copper, nickel, silver, and zinc ores. Its operations also aren’t reliant on only one geographical area, with mines located throughout the world from Panama to Turkey to Australia, to name a few. First Quantum will report first-quarter earnings for 2023 on April 25, and with our Volatility Quotient (VQ) placing such a high risk on this company, the more risk-averse investor may just want to put First Quantum on their watchlist for now. FQVLF currently pays a dividend of $0.22 per share, which equates to a small yield of 0.83%.