Yamana Gold Inc. (NYSE:AUY) and Newmont Mining Corp (NYSE:NEM), two gold producers with high margins and low forward P/E, had received positive calls from analysts recently. Both stocks will be analyzed fundamentally and technically in this article. Investing strategies will also be reviewed.
Yamana Gold Inc.
AUY was up 2.72% and closed at $15.11 on March 19, 2013. AUY had been trading in the range of $12.68-$20.59 in the past 52 weeks. AUY has a market cap of $11.37B with a low beta of 0.73.
On March 19, 2013, Cowen upgraded AUY from hold to buy with a price target of $16.40. The analyst noted,
Shares have traded off with the group YTD. However, AUY has not disappointed in either 2012 performance or 2013 guidance, unlike its peers. Production growth for 2013-2016E leads the peer-group at a CAGR of 8.0% versus peers of 6.0%.
Analysts currently have a mean target price of $22.11 and median target price of $22.00, suggesting 45.60%-46.33% upside potential. Analysts, on average, are estimating an EPS of $0.24 with revenue of $625.34M for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.11 with revenue of $2.90B, which is 24.00% higher than 2012.
On February 20, 2013, AUY announced another year of mineral reserve and mineral resource increases. As quoted,
On a gold equivalent basis, mineral reserves are 19.3 million ounces for the year ending December 31, 2012, an increase of over 4% from 2011. This is comprised of 17.7 million ounces of gold mineral reserves and 89.2 million ounces of silver mineral reserves. On a gold equivalent basis the average grade of mineral reserves increased 3% to 0.96 grams per tonne (g/t). For 2012, measured and indicated mineral resources increased 15% to 15.6 million GEO with an average gold equivalent grade of 0.89 g/t, which is a 14% increase from 2011. This is comprised of 14.1 million ounces of gold mineral resources, an increase of 7%, and 78.8 million ounces of silver, an increase of 237%.
Fundamentally, there are a few positive factors for AUY:
- Higher revenue growth (3-year average) of 31.8 (vs. the industry average of 18.6)
- Higher operating margin of 37.2% and net margin of 15.9% (vs. the industry averages of 27.9% and 15.4%)
- Lower debt/equity of 0.1 (vs. average of 0.2)
- Lower P/E of 30.3 (vs. the industry average of 31.3)
- Lower Forward P/E of 10.0 (vs. the S&P 500's average of 14.1)
- AUY offers a dividend yield of 1.72%
Technically, the MACD (12, 26, 9) indicator is showing a bullish trend, and the MACD difference continues to diverge. The momentum indicator, RSI (14), is picking up and is currently near neutral at 51.67. AUY is currently trading below its 200-day MA of $16.74 and 50-day MA of $15.80, as seen from the chart below.
How to Invest
With its strong growth potential and below-average production costs, AUY remains a buy at current valuation (Forward P/E of 10.0). For bullish investors, a credit put option spread of July 20, 2013 $11/$13 put can be reviewed. Investors can also review the following ETFs to gain exposure to AUY:
- Market Vectors TR Gold Miners (NYSEARCA:GDX), 4.91% weighting
- MSCI Global Gold Miners Fund (NYSEARCA:RING), 4.36% weighting
- Global Gold and Precious Metals Portfolio (NASDAQ:PSAU), 3.89% weighting
Newmont Mining Corp
NEM was up 0.85% and closed at $40.37 on March 19, 2013. NEM had been trading in the range of $38.50-$57.93 in the past 52 weeks. NEM has a market cap of $20.06B with a very low beta of 0.32.
On March 4, 2013, Standpoint Research initiated coverage on NEM with an "accumulate" rating and a price target of $48.00. Analysts currently have a mean target price of $52.83 and a median target price of $51.00 for NEM, suggesting 26.33%-30.86% upside potential. Analysts are estimating an EPS of $0.93 with revenue of $2.48B for the current quarter ending in March, 2013. For 2013, analysts are predicting an EPS of $4.12 with revenue of $10.35B, which is 4.90% higher than 2012.
On February 21, 2013, NEM reported net income from continuing operations of $1.9B or $3.80 per basic share ($3.78 per share on a fully diluted basis) in 2012, compared with $0.5B, or $1.02 per share in 2011. The company had increased quarterly dividend to $0.425 per share. As quoted from President & CEO Gary Goldberg,
We were pleased to return the highest dividends in the gold industry on a per share basis in 2012. We will maintain this competitive advantage by focusing on reducing our total cost of production and progressing only the most promising opportunities in our portfolio. These include our Akyem project in Ghana, which will begin production later this year, and advancing the Phase 6 stripping campaign to deliver the next tranche of production from Batu Hijau
Fundamentally, there are a few positive factors for NEM:
- Higher operating margin of 32.5% and net margin of $18.3% (vs. the industry averages of 27.9% and 15.4%)
- Stronger ROE of 13.6 (vs. the industry average of 7.1)
- Lower P/E of 10.6 and P/S of 2.0 (vs. the industry average of 31.3 and 2.8)
- Lower Forward P/E of 8.0 (vs. the S&P 500's average of 13.9)
- NEM offers an annual dividend yield of 4.21%
Technically, the MACD (12, 26, 9) indicator is showing a slightly bullish trend, and the MACD difference continues to diverge. RSI (14) is picking up and approaching neutral at 48.29. NEM is currently trading below its 50-day MA of $42.26 and 200-day MA of $46.67, as seen from the chart below.
How to Invest
At current valuation (Forward P/E of 8.0) and 4.21% annual dividend yield, NEM is an attractive buy. For bullish investors, a credit put option spread of May 18, 2013 $36/$38 put can be reviewed. Investors can also review the following ETFs to gain exposure to NEM:
- MSCI Global Gold Miners Fund , 9.40% weighting
- Market Vectors TR Gold Miners , 7.97% weighting
- Global Gold and Precious Metals Portfolio , 7.64% weighting
Note: All prices are quoted from the closing of March 19, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AUY, NEM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.