Some of the other good gold miner growers are Eldorado Gold Corp. (EGO), Agnico-Eagle Mines (AEM), Kinross Gold Corp. (KGC), Barrick (ABX), and the ETFs GDX and GDXJ. These stocks should be able to rise on growth. They don't need gold to keep going up to do so. They would still be hurt by gold going down. However, they seem likely to have good performance in the long term (or at least until such time as gold plunges dramatically). With this in mind we should look at some of the fundamentals, which I have put in a table below. I note that I have not included 5% NPV estimates because they would either be too high or too low depending on how you view the current price of gold relative to your predicted future price of gold. I have also not included GDX and GDXJ in the table. However, they have historically had good growth characteristics relative to good growth gold stocks. From Yahoo Finance the PE of GDX is 15, and the PE of GDXJ is 16. These are both reasonable values compared to the top stocks in the sector.
|
Stock |
ANV |
EGO |
AEM |
KGC |
ABX |
|
Price |
$34.06 |
$15.95 |
$63.88 |
$15.10 |
$47.65 |
|
1 yr. Analysts' Price Target |
$49.09 |
$22.99 |
$84.95 |
$22.39 |
$65.17 |
|
PE |
83.07 |
41.97 |
30.52 |
16.89 |
13.78 |
|
FPE |
20.15 |
16.61 |
17.70 |
15.73 |
10.10 |
|
Avg. Analysts' Recommendation |
1.9 |
2.2 |
2.4 |
2.2 |
1.7 |
|
EPS Estimate FY2011 |
$0.76 |
$0.69 |
$2.61 |
$0.69 |
$4.35 |
|
EPS Estimate FY2012 |
$1.69 |
$0.96 |
$3.61 |
$0.96 |
$4.72 |
|
Price/Book |
5.94 |
3.0 |
2.87 |
1.15 |
2.33 |
|
Price/Cash Flow |
82.03 |
26.09 |
18.54 |
10.8 |
10.25 |
|
Market Cap |
$3.03B |
$8.74B |
$10.79B |
$17.15B |
$47.62B |
|
Enterprise Value |
$2.79B |
$8.82B |
$11.22B |
$15.99B |
$49.98B |
|
Beta |
1.52 |
0.42 |
0.79 |
0.60 |
0.53 |
|
Total Cash/Share |
$3.80 |
$0.59 |
$0.68 |
$1.37 |
$4.45 |
|
Short Interest as a % of Float |
6.60% |
0.63% |
0.90% |
0.38% |
0.62% |
|
5 year EPS Growth Estimate per annum |
N/A, but strong growth |
9.95% |
9.90% |
10.00% |
18.06% |
|
Total Debt/Total Capital (mrq) |
4.49% |
4.94% |
13.82% |
3.02% |
23.33% |
|
Quick Ratio (mrq) |
14.71 |
0.68 |
1.41 |
2.18 |
2.33 |
|
Interest Coverage (mrq) |
3.4 |
50.55 |
3.76 |
-- |
25.34 |
|
Return on Equity (ttm) |
8.15% |
7.30% |
10.85% |
9.02% |
18.86% |
|
EPS Growth (mrq) |
-95.85% |
1.92% |
86.54% |
-13.46% |
26.72% |
|
EPS Growth (ttm) |
49.00% |
19.22% |
530.93% |
69.31% |
173.26% |
|
Revenue Growth (mrq) |
36.09% |
20.16% |
75.96% |
42.49% |
19.72% |
|
Revenue Growth (ttm) |
119.66% |
69.78% |
111.76% |
29.66% |
27.86% |
|
Annual Dividend Rate |
-- |
$0.0481 |
$0.64 |
$0.10 |
$0.48 |
|
Gross Profit Margin (ttm) |
55.83% |
64.70% |
52.89% |
54.27% |
62.48% |
|
Net Profit Margin (ttm) |
21.99% |
27.65% |
22.15% |
31.72% |
30.15% |
|
Cost of Gold/oz. (mrq) |
$491 |
$410 |
$531 |
$543 |
$308 |
Sorting through these is very difficult. AEM has had unusual recent expenses. It had a fire in the kitchen facility of its Meadowbank mine. It has been building several new gold mines simultaneously. This may actually be one of the best choices going forward. ABX is easily the largest of the above choices. It is well managed. It is efficient with its low cost of gold/.oz. of $308/oz. It has a great five year EPS Growth per annum of 18.06%. What more could you want? ANV is perhaps the fastest growing. It doubled its gold reserves since August 2010. KGC and EGO also have their good points. In sum all are worthy of investment. In addition ETF's, GDX and GDXJ, are great performers, although it is harder to pin down specific information on them. All are technically over sold after the commodities sell off last week. However, they might still go down further. The Chinese CPI data came in at 5.3%, and the Bank of England raised its medium term inflation outlook. These events should light another fire under gold. High inflation has a tendency to do that. Of course, the possibility exists that the clearinghouses could raise the margin requirement for gold as they did recently for silver. This would cause gold to fall. That in turn would hurt the gold mining stocks. I don't think there is a good solution. Unless you want to be paralyzed in this market, you just have to average in.
Then you have to be prepared to sell if clearinghouses start to raise margin requirements for gold futures. You need to be prepared to sell if the EU credit crisis escalates to the point that it causes a credit seize up. You have to be prepared to sell if the USD starts to rally quickly. This would almost assuredly cause a USD carry trade unwind. A strong USD carry trade unwind would cause a sell off in equities. Plus a considerably stronger USD would cause commodity prices to fall, including gold. You need to be prepared for a panic about the end of QE2. Of course such an event might cause gold prices/stocks to go up. I wish I could say this would be an easy market. Unfortunately I can't.
The above gold stocks seem likely to be good long term investments. You can try to treat them as such. If you wait, you may pass up Chinese inflation (and the Chinese do tend to buy gold as a hedge against inflation). To me starting to average in seems the best solution. I find it hard to believe that gold will crash dramatically soon. I find it hard to believe the clearinghouses will raise margin requirements on gold dramatically. That would anger the Chinese, Indians, and more who own a lot of it. Plus gold is not a critical use commodity. Even the Jewelry business can find substitutes. The Chinese CPI was still 5.3% yesterday. The Bank of England raised its medium term inflation outlook. These make gold stocks a buy in my mind (at least for an averaging in strategy). I have included a few 1 year charts below to demonstrate the current over sold state of the gold stocks.
1 yr. chart of AEM:
A number of these charts show the stock is at or near its 200 day SMA. It is common behavior for strong stocks to bounce up from this area. This is a technical reason to believe in a move up in the near term. The Williams %R and the Fast Stochastic indicators also indicate the stocks are over sold. They could become more oversold, but the chances of a bounce are enhanced. In the case of AEM and KGC the Money Flow Index has already started to trend upward without a significant upturn in the stock price. This may be a first sign of strength for these stocks. It may mean they are more likely to turn upward.
NOTE: It seems there is a suggestion out this morning that the U.S. Treasury sell off some or all of its $400B in gold reserves to help the U.S. avoid hitting its debt ceiling. That much more gold entering the market all at once would sent prices plummeting. Selling off MBS's has also been suggested. These ideas are causing gold to fall rapidly today. I do not believe either idea will come to fruition. However, it will likely be best to delay buying Gold stocks until this issue is put to rest (at least mostly). The good news is that gold stocks will likely be an even better value. The analysis in the above article is still valid.
For forecast of gold in 2011 check out gold forecast page.
