Golden Opportunity - Gold Mining Stocks
Elaine is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Any Fool knows that the goal is to buy low and sell high. If you're considering purchasing an undervalued gold mining stock, this is your golden opportunity.
Private citizens rushed to the bank yesterday in Cyprus; a flurry of withdrawals resulted as citizens learned the terms of the Cyprus bailout. Imagine taking 10% of a private citizen’s funds to cover the bailout. Is it any wonder that the Eurozone bailout plan failed? Mike Maloney of GoldSilver.com stated that “the Cyprus bank deposit confiscation is a test to see how blatant the expropriation of private assets can become.” The very idea of considering taking private funds is unthinkable to me.
Gold reacts to economic news
What does this have to do with gold mining stocks? The market made small corrections in response to the news. The most significant change was Yamaha Gold (NYSE: AUY) with a gain of 2.7%. That may not be enough to send you rushing to your computer to put in a “buy” order, but it's important to consider that what happens in the world economy has an effect on gold and gold mining stocks. Gold is legal tender and gold mining is the means by which we withdraw that shiny golden object from its current residence.
As gold prices rose over the last year, ($1,555 to $1,796 per Troy ounce), gold miners adopted a “growth-at-all-costs” attitude. With the pullback in gold prices over the last few months, their focus has been forced to change. Gold mining company CEOs are now apologizing to shareholders and promising they will do better. They're shedding unprofitable mines and focusing more on cash flow and dividend yields.
Gold mining stocks
How does this affect investors? As long as the mine is located in a stable country, the cash flow is good and the stock price is low, this is certainly a short-term investment worth considering. Yamana Gold certainly fits the criteria with mines in Brazil, Chile, Mexico and Argentina. With cash flow of $509 million and production at $500 an ounce, as opposed to South Africa, with production at $800 plus per ounce, this stock should be high on your watch list.
Morningstar’s Samuel Lee argues that gold miners offer the richest yields in years. Dividends are growing at a nice clip. As long as gold prices remain fairly stable and the stocks are undervalued, gold mining stocks are becoming more appealing.
Barrick Gold (NYSE: ABX) is undervalued. With a market cap of $28.9 billion and a P/B of 1.32 (which is below the industry average of 2.25), this stock is a contender. Revenue growth and cash flow from operations is good, even though the earnings-per-share growth is feeble. The most impressive factor was the net operating cash flow, which increased 28.51% at a time when the industry average was -44.49%. 73% better than the industry on net operating cash flow is difficult to ignore.
Eldorado Gold (NYSE: EGO) is a contender, but the weakest of the group in this Fool’s opinion. Eldorado Gold has a market cap of $6.8 billion and runs lower, but very close to, the industry averages on P/E and P/B. (P/E of 21.85 compared to the industry 22.05, and P/B of 1.16 compared to the industry 2.25). Their revenue is up 14.9% over the prior year, which is above the industry average. My hesitation is that the stock performance has been disappointing, the growth in earning per share is feeble and the return on equity is dismal.
Newmont Mining (NYSE: NEM) is another gold mining stock that has my attention. With a market cap of $19.9 billion and a P/E of 10.63, compared to the industry 21.98, this stock is undervalued. The most impressive factor was the increased earnings per share, despite the decline in revenue. This means that they responded to the need to run leaner and smarter sooner than most of the other gold mining companies. When net income increases by 165.5% over the prior year, it's time to pay attention. This stock is a top contender in my opinion.
The market agreed with me in response to the Cyprus news yesterday. Newmont Mining and Yahama Gold rose, while Eldorado fell and Barrick barely fluctuated. Keep a watchful eye on Newmont, Yamaha Gold and Barrick.
I admit I have a strong interest and investment in gold. I'm also a strong proponent of going back to the basics, back to the point of origin. Gold mining stocks are currently undervalued and, thus, wise considerations for your portfolio. They certainly are for mine.
I currently own gold eagles through GoldSilver.com.