Are These Companies "Good as Gold"?

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

Today, we'll examine three mining stocks which specialize in gold. The first of these, Aginco-Eagle Mines (NYSE: AEM), a Canadian mining company, currently has excellent growth prospects, solid financial health, but currently lacks meaningful earnings, with no measurable P/E. However, much like so many stocks I've chosen to cover, my love of DRIP's caught my eye when it came to the company. As in the case of other stocks I've examined Aginco-Eagle has a 1.7 percent dividend and a 5% discount on additional purchases using dividend reinvestment. Therefore, long-term investors are handsomely rewarded, which bears significant consideration when contemplating a potential investment.

The second stock we'll study is Freeport-McMoRan (NYSE: FCX). Unlike AEM, Freeport-McMoRan is a more minor player in the gold mining specialty, choosing to focus more on copper and iron ore. While, this emphasis makes for more attractive diversification and long-term profit, if gold goes on a tear, the stock, may not be as profitable and thus offer lower ROI to its shareholders. However, if gold prices cool down, FCX has enough exposure to other precious metals, to help hedge if profits are lacking in the gold market and as such FCX possesses a narrow economic moat that Aginco-Eagle lacks.

Finally, the third stock we'll analyze is Goldcorp (NYSE: GG). Like AEM, GG is a Canadian company. The nice aspect of Goldcorp, like so many commodities companies is it pays a regular monthly dividend. Still, the obvious disadvantage to receiving the dividend, as in the case of AEM, is there's a 15% Canadian foreign dividend withholding tax.  That being said, Goldcorp maintains a relatively low dividend payout ratio, an attractive 20% of capital. Therefore, I expect GG's dividend to remain safe long-term. Also Goldcorp's current valuation is rather attractive at 22.8% off its 52 week high. Another worthy aspect to note regarding the stock is it sports rather healthy margins, pegged at roughly 29% and a trailing P/E of approximately 18.9, which in my estimation is decent, but nothing to write home about. Unfortunately, Goldcorp lacks a DRIP, so this is an obvious disadvantage to long-term investors.

In sum, I like mining stocks. They tend to be volatile, but at the same time I think they provide fundamental opportunities to generate passive income without the practical disadvantage of holding physical precious metals. So, if you're looking to invest long-term in commodities that tend to be inflation-resistant in uncertain economic times, I think these stocks deserve a closer look. By doing so, investors will have sufficient precious metals exposure, provided a tolerance for high volatility, to weather the current financial storm of up and down markets.

Keep searching

These are just a few! There are even more mining stocks. While, no stock is a sure thing, each one has its advantages and disadvantages and must be carefully weighed prior and during investment. But some stocks are a lot better quality than others. By examining each opportunity carefully, you'll go a long way toward improving your investing skills and learning how to separate out the most attractive investments, mining company, or otherwise, from the rest.


dmercer1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. 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! "This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact."


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