Gold Stocks Look Cheap - BMO 12 comments
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Gold stocks have outperformed the gold price itself in 2009, which is a major change of pace from recent years. But according to BMO Capital Markets analysts David Haughton and Andrew Breichmanas, the senior and intermediate companies still look relatively cheap compared to past bull markets for gold.
In a note to clients, they wrote that the stocks are pricing in gold prices that are about 15% below the current spot price (which recently topped $950.00 an ounce).
Meanwhile, the miners themselves are likely to post higher earnings as they benefit from a gold price approaching record levels. They are also getting help from the fact that currencies in most gold-producing countries are down against the U.S. dollar, and oil prices that are much lower than they were a year ago. In both cases, that means lower costs.
Mr. Haughton and Mr. Breichmanas also pointed out that the balance sheets of gold companies are rapidly improving. They calculated that their gold stock universe carried $9-billion of debt in 2008, expected to fall to $5-billion this year and just $1-billion in 2010.
Put together, they think the outlook for gold stocks remains very strong. They have hiked the target prices on most of the stocks they cover based on multiple expansions in the sector, and rate the whole sector "outperform." They prefer Red Back Mining Inc. (RBIFF.PK) and Kinross Gold Corp. (KGC) for low-risk growth, and wrote that Gammon Gold Inc. (GRS) and Alamos Gold Inc. (AGIGF.PK) offer potential upside through operational improvements and expansion.
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This article has 12 comments:
There is so much stock market manipulation going on by the elite class and the corruption of politicians is absolutely sickening. The average investor can not and should not trust the American stock market regardless of what the talking heads say on CNBC or what "Analysts" pumping stocks for their own personal gain say!
Your missed my point completely. I too am bullish on Gold. Read my comment...I am referring to the price of gold miner stocks..not the price of gold. Buying physical gold bullion is a better investment in my opinion. The gold miners carry far more downside risk because many of them are heavily in debt and are poorly managed.
I think Gold will touch $1200 range sometime in 2010. But I am fair minded enough to not be investing all of my hard earned money in precious metals, stockpiling ammunition, and forecasting total collapse of the dollar like you and your fanatical gold buddies.
And yes, I consider it to be market manipulation when the US government is investing US citizens tax dollars in the stock market.
Gold and silver miners are a leveraged play on gold. If memory serves me correctly, they tend to move about twice what gold moves in percentage terms - both up and down. Furthermore, there ARE some deals out there, especially miners which have taken on a large amount of debt for acquisitions and expansion and still carry it on their balance sheets. If PM's continue to rise, those company's shares will soar as the market realizes their margins are exploding along with profits, thus removing any doubt about their ability to pay down their large debt loads. CDE immediately comes to mind, but there are others. Juniors will also be caught up in the speculative frenzy; many will become tenbaggers.
Physical metal is good if you are expecting the dollar to be destroyed at some point in the near future. If you don't buy into that catastrophic worst-case scenario, however, and you are bullish on precious metals, miners clearly offer much higher potential for profit.
Trading shares of gold stocks, shares of gold mutual funds, and shares of gold ETF's is much more convenient and less expensive than trading physical gold. If the market infrastructure doesn't break down in an apocalyptic collapse, shares will always have a market in which they can be traded, and shares will leverage the price of gold bullion.
If there is an apocalyptic collapse, will you trade me my gold coin for that nice fresh-looking rabbit you have there?
I can't tell a genuine Credit Suisse 1 ounce gold bar from a counterfeit. Can you? How about a 2007 US Gold American Eagle? Are 1 ounce Canadian Maple Leafs worth more, or less, than 1 ounce Krugerrands? What year American Silver Eagles are 0.999 pure silver, and what years are 0.900 pure silver? Is this a real Morgan Dollar, or is it fake? Is the Suisse 20 Franc coin 0.1867 ounce pure gold and the British gold sovereign 0.2354 ounce pure gold, or the opposite? Is this ring 10 carat or 14 carat or 18 carat or 22 carat gold? What’s a carat, anyway? Because almost all people don’t know these things, and only a few people do know them, those few who do get paid a commission for every gold trade they are involved in. Then there is the cost of storing gold, the problems associated with recovering it if it is stolen, and insuring it, and the risk of government confiscation. FDR confiscated privately held American gold, and guess who likes to think he follows in FDR’s footsteps.
How likely is it, in the event of a collapse in the banking system, that anybody will even take a chance on trying to trade precious metals, or that there will be fair trading? What will be the risks in trying to go some place to trade?
On the other hand, trading shares of gold stocks is not for the amateur or the faint of heart, as many factors are involved that aren't easy to keep track of unless you can put hours a day into it. For most people gold ETF's and gold mutual funds are the best way to cash in on the timeless value of gold, especially during uncertain times. Fund managers generally do a better job than the individual investor can do, even if it involves a passively managed ETF based on a fixed portfolio. That’s why most investors and most personal financial advisors don’t know much, if anything, about investing in individual gold stocks. Among the few that do, many of them admit they are only familiar with one or a very few gold stocks.
For one thing, gold stocks generally have a relatively short window of opportunity in which maximum profits can be obtained, sometimes just minutes, sometimes hours to days, and if you don't happen to be watching the board with an intent to sell high when the price is up it can cost you 10 or 20%, or more. If your intent is to buy low, minutes to hours can also cost you 10 or 20 %. If you miss the tops and bottoms by several days to several weeks, it can easily cost you half the potential value of your investment in a position.
Gold stocks have a great deal of volatility, by comparison to stocks in most other sectors, and most of the time they flop around in a spastic price limbo between their rare highs and rare lows.
For somebody willing to be a student of the market, of politics, of currencies, of monetary policies, of central bank policies, of environmental issues, of tribal property rights, of geography, and of geology, investing in gold stocks is a terrific sport and a thrilling challenge, and there's a pile of dough out there waiting to be made or lost.
Even little exploration stocks are starting to come alive, especially those with a significant resource, though only a real financing market will truly lift them. These however, are not easy to pick but have the advantage of being down so far they've only one way to go from here.
As for distinguishing gold coins or bars, a little experience will give a lot of confidence and a small weigh scale and loop will give almost complete certainty. Doc should find a vendor such as Border Gold he can trust.
Anyone have any thoughts on BVN?
All paper assets are rallying since early March and GDX is a paper asset too. Paper assets have their time and place, but the metal is the real thing.
screencast.com/t/DpJHk...
Blonde Molly