After 186% Rally, Mexico’s Metals King Penoles Looks Overbought

  • Company’s RSI surges to highest level since January 2004
  • Five analysts surveyed recommend buying shares; six say hold

The 186 percent rally in Industrias Penoles SAB this year has sent the Mexican miner to the most overbought level in more than a decade.

The company’s 14-day relative strength index surged to 95.3 on Monday, the highest level since January 2004. Some technical analysts see an RSI of 70 or greater as a signal that a security could be poised for a decline. The stock rose 9.8 percent to 506 pesos at 12:10 p.m. in Mexico.

Penoles has been benefiting from a surge in precious metals prices, including gold’s best start to a year in four decades, as investors sought assets considered safe havens amid concern over global growth and Britain’s vote to leave the European Union. The company relies on gold for more than 40 percent of its sales, making it the miner’s biggest source of revenue. The surge in bullion is a bonanza for an industry that borrowed record amounts to expand output after prices reached all-time highs in 2011, only to endure reduced earnings and even losses as prices began a three-year slump.

“The market has overreacted,” Carlos Hermosillo, an equity analyst at Mexico City-based Corp. Actinver SAB, which has a hold rating for the shares. Gold “isn’t the only product that the company has. The market is taking it as a more-than-perfect proxy and in reality it’s not that.”

Analysts surveyed by Bloomberg are split on Penoles, with six hold recommendations and five buys.

Before it's here, it's on the Bloomberg Terminal.