3 Gleaming Gold Stocks to Consider Now
Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There seems to be a lot of talk as to if gold is the 'right investment' or if it is just a trend.
To be fair, most investments (and there are those that argue ALL) are based on market movements, consumer need, and are thus cyclical and follow a pattern or 'trend.' However, gold is attracting bargain hunters after a sharp pullback that has erased billions in value in bullion-backed ETFs, and gold traders are more bullish now. Moreover, gold has been one of the few investments to maintain intrinsic and extrinsic value based on its rarity, use as currency, and even its performance as an investment.
Gold is not just a passing craze. It is an important and strategic tool in the investors' toolbox. To that end, here are three stocks in the gold sector that investors should explore further.
A seasoned gold veteran
Gold dropped 0.9% last week after positive economic data raised concerns among traders that the Federal Reserve may begin to taper its monetary stimulus program as early as September. Keep in mind, gold is closely tied to such economic factors as unemployment, data from the U.S. mint, and even seasonal lulls.
Even though gold prices ended lower, dropping to the lowest level in nearly two months as investors around the world showed mounting concerns over rising short-term interest rates, gold mining stocks remain mixed. For example, even as shares of Gold Fields were falling close to 2%, Agnico-Eagle Mines was on the rise.
Barrick Gold (NYSE: ABX) has a breadth of experience and successful components, such as its expanding profit margins and largely solid financial position. However, it has shown only moderate growth in the company's earnings per share, and weak operating cash flow. Recently, Barrick has been hovering around $13.76 on average volume.The stock ranged in price between $13.43 and $14.30.
I see Barrick as a 'buy'. It is well known that gold and silver historically make their low points at this time of the year. Looking at the last 30 years of price action, it is clear that the first half of the year is a sideways-to-lower-price affair for the gold market. However, the second half of the year shows a distinct bias to the upside.
From a fundamental perspective, the demand equation of the second half of the year reflects demand due to holiday products, Christmas, and India’s wedding season as well as its crop harvest. As Barrick is a cheaper buy right now, it still has the assets and reasonable debt ratio to see sizable growth in the coming months.
Worth its weight in gold
Another cheap buy right now that has potential to move is AngloGold Ashanti (ADR) (NYSE: AU). AngloGold has been floundering recently, and even hit a new 52-week low during the week ending July 5 - trading at $12.77, below its previous 52-week low of $13.08.
Anglogold Ashanti has a market cap of $5.5 billion and its stock is down 55.8% year-to-date. What is more, AngloGold Ashanti is facing downgrades from analysts as part of the already bearish view on the outlook for gold and silver prices. Its high all-in cost base and the need to restructure could be incredibly difficult to achieve with South Africa's highly unionized labor force.
So why buy?
Both AngloGold Ashanti and Barrick will rebound once they're beyond their write-downs. By controlling its debt and cutting costs, and - of course- the gold price increasing by its anticipated 12% to 18%, it would allow AngloGold Ashanti earnings power once again. Specifically for this company, with the expanse of its foreign operations, it can gain more than those tied to specific Western and U.S. data. So when things 'improve' economically in the West (such as last week's revision by the S&P of its U.S. credit-rating outlook to stable from negative), it will have less of an impact than for other companies with highly centralized or localized operations.
In addition, for gold, volumes are light and in thin markets, the price can quite often see exaggerated movements on relatively small developments. These 'summer doldrums' turn analysts into doomsday prophets. "Unrest in South Africa" is the equivalent of "Dog bites Man" and should be taken as information, not as proclamation.
Buy low, sell high
As positive data is released in the U.S., it has taken a bit of the shine off gold as an investment. This is compounded, again, by the seasonal fluctuations of the investment. That said, according to the Fed’s Bullard, the current low inflation rates may well see quantitative easing (QE) extended for longer than anticipated, and improved conditions for the jobs market suggest the Fed could slow its pace of bond buys.
Although gold typically rallies when investors shun equities and other so-called risky assets, a broader drop in commodity prices is weighing on gold and pushing it lower. This notable downtrend marks a “classic bottoming pattern” that serves to clear the markets and pave the way to get in at a trough.
Newmont Mining (NYSE: NEM) also looks good based on its position. The stock has joined others in a lagging performance, falling about $0.76 (-2.7%) to $27.02 at close last week (Friday, July 5). As a whole, the stock has ranged in price between $26.58 and $28.26.
But the key to Newmont is not the price - it's the exploration play. The same can be said for some smaller players like Pershing Gold. Recently, geologists have conducted exploratory and detailed geologic mapping of the Relief Canyon deposit in Nevada and results could be promising for both companies. Most of the expanded target is located on claims owned by Pershing Gold, with the rest located on claims that Pershing Gold controls pursuant to its minerals lease and sublease with Newmont. The leased lands and claims are subject to an Area of Interest ("AOI") with Newmont.
Whether they 'strike it rich' or not does not affect the rating by analysts for both as 'buy.' These stocks are the least impacted of those mentioned above in terms of exposure to political unrest, and can benefit from the additional production during the increase in gold prices I believe are coming.
Many investors are scared too far into their holes to want to get excited again about gold. However, as gold, silver, and other precious metals near the bottom, it is the time for investors to get back in. It's a standard rebound play and the previously mentioned stocks have the potential for sizable gains.
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Bill Edson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!