Feeling Contrarian? Gloomy Media Says to Avoid Gold Fields Ltd. (GFI)

Eben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A Contextuall sentiment analysis on financial news headlines shows that the media has turned bearish on Gold Fields Ltd. (GFI), but does this extreme pessimism trigger a contrarian buy signal?

After all, wouldn't you want to buy into a company that only has to exceed the media's lowered expectations?

Herd Behavior: The Significance of Extreme Investor Sentiment

Overwhelming consensus on a company can drive stock prices beyond their true fundamental value--understating or overstating inherent risks. These mispricings often present an opportunity for investors willing to go against conventional wisdom.

This is the core driver behind our sentiment analysis technology--by detecting herd behavior, we help our users identify potential contrarian investing opportunities.

Analyzing Media Sentiment for Gold Fields Ltd. (GFI)

Our news sentiment algorithm analyzed recent Gold Fields Ltd. (GFI) headlines, classifying 13.0% of headlines as Positive, vs. the Gold Miners industry average of 28.83%.

43.0% of headlines have been classified as Negative, vs. an industry average of 16.45%.

A Lot to be Worried About

When it comes to the gold miner stocks, there is a lot to be worried about. Gold prices have tumbled, pressuring profit margins and forcing gold miners to aggressively cut costs.

Free cash flow is another major problem. According to recent research, if gold prices averages less than $1400 in 2013, most miners would be generating negative free cash flows, assuming no change in capex plans.

So, considering this extreme negativity, relative to industry averages, is most of the bad news already priced into the stock? We think so, especially when you consider that the company has been proactive in the weeks leading up to the current downturn, splitting itself into two companies in order to become more competitive.

Charting Gold Field's News Sentiment Trends

The following sentiment chart can be used to explore sentiment trends for Gold Fields relative to other major companies, where each dot represents a clickable link to a company page.

Positive sentiment percentages are plotted on the vertical axis, while negative sentiment percentages are plotted on the horizontal axis.

In other words, companies in the top left have more optimistic news sentiment than companies in the bottom right. (Access news sentiment chart)

<img src="http://g.fool.com/editorial/images/36133/sentiment-chart-gold-fields_large.png" />

You'll notice that Goldfields is at the bottom right of the chart, next to Barric Gold (ABX)--indicative of the overwhelmingly negative news coverage the gold miners have been receiving over recent weeks.

Eben Esterhuizen 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!

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