I like to focus on investments that are out of favor and cheap. It often pays to buy when the investing herd is selling or showing little interest in a stock or asset class because that is when it is more likely to be a bargain relative to other assets. Years ago, it was possible to buy gold for less than $300 per ounce and silver for about $5 an ounce and back then, nobody really wanted to own precious metals as an asset class. A friend of mine even had a 100-ounce bar of silver that he used as a doorstop because it was only worth around $500. Silver and gold have become far more valuable over the years, and these metals might not be considered cheap now, but many of the well-established mining companies are looking like bargains and trading well below their historical valuation levels. While the gold and silver rally may be on pause for now, the outlook for precious metals is bullish in the long run, and a recent Barron's.com article summarizes why, stating:
"On paper, the case for gold is as solid as ever. Global central banks are printing money with gusto, governments are devaluing paper currencies, and the $100 bill has just overtaken the dollar bill as our most heavily printed note. In fact, it's precisely because gold remains such an appealing store of wealth that throngs of investors -- and speculators -- can't help flocking to it. As a result, gold increasingly trades less like a safe haven and more like a risky asset."
With mining stock valuations at historically low levels and gold remaining a strong asset class, it makes sense to consider some potential bargains, such as the stocks below:
Newmont Mining Corporation (NEM) shares look cheap right now based on a number of valuation metrics. First of all, the stock trades for about 9 times earnings, while the average stock in the S&P 500 trades for around 14 times earnings. It's even more impressive when you consider that Newmont has historically traded for about 24 times earnings over the past decade (as the Barron's article above points out). It also offers a solid dividend yield of 3%, which will reward investors as they wait for a higher share price.
Newmont has the distinction of being one of the largest gold miners in the world, and it has operations in the United States, Australia, Peru, Canada, New Zealand, and other areas. Newmont has been posting solid results with third quarter revenues of $2.5 billion and net income from continuing operations of $400 million, or 81 cents per share. Newmont has major gold production and reserves, but Newmont is also producing copper, which could be poised to become more valuable as the Chinese economy shows signs of heating up after a slowdown in recent months. With a solid dividend, a strong balance sheet and compelling valuation of just 9 times earnings, Newmont shares look like an ideal buy right now.
Here are some key points for NEM:
Current share price: $45.94
The 52-week range is $42.95 to $64.62
Earnings estimates for 2012: $3.68 per share
Earnings estimates for 2013: $4.96 per share
Annual dividend: $1.40 per share which yields 3%
Barrick Gold Corporation (ABX) bills itself as the world's largest gold producer. It has 27 mines and exploration and development projects in many parts of the globe. It has operating mines in North America, South America, and Australia. It also has copper mines and projects in Chile, Zambia and Saudi Arabia. This stock bottomed out around $32 in August, and then rebounded to about $43 in September. Now the stock is back near the August lows, providing investors with another opportunity to buy cheap. Analysts expect earnings to jump from $3.90 per share in 2012 to about $5.03 in 2013. That puts the price-to-earnings ratio at just around 7 times earnings, which is near half the average for the S&P 500 Index (SPY) of 14 times earnings. Barrick Gold has about $2.53 billion in cash and around $13.94 billion in debt. While that is a fair amount of debt, the company appears capable of managing it, and remains highly profitable. With the shares just about $3 above the 52-week low, and with strong earnings growth expected in 2013, it makes sense to consider the stock today.
Here are some key points for Barrick Gold:
Current share price: $34.60
The 52-week range is $31 to $50.39
Earnings estimates for 2012: $3.90 per share
Earnings estimates for 2013: $5.03 per share
Annual dividend: 80 cents per share which yields 2.3%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.