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The Stock Screen

  • Industry: Gold (Basic Materials)
  • Share Price: Min $1.00; Max $40.00
  • Market Cap: Min 250 mil; Max 25 bil
  • Price to Earnings Ratio: Max 20
  • Price to Book Ratio: Max 10
  • Price to Sales Ratio: Max 20
  • Price to Earnings Growth Ratio: Max 20

Focus on value measures. Range in stock price and market capitalization allows for a broad sample of potential value investments offering different risk profiles based on size.

The Results

The stock screen returned a lean list of six companies to compare; Harmony Gold Mining Company Limited (HMY), IAMGOLD Corp (IAG), Gold Fields Ltd.(GFI), Compa (BVN), Newmont Mining Corporation (NEM), Goldcorp Inc. (GG). The broad range market cap screen has returned small-cap and large-cap gold miners. The results are presented in the table below.

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The Value Comparison

The table below compares the value measures and ranks each company 1 through 6; 1 offering the best value, 6 offering the worst value, when compared to peers returned for this stock screen.

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The table below sums the rank by company, for each measure and lists the total results from lowest to highest; lowest offering the best value. Each measure has been given equal weight.

Based on the comparison of these value measures, IAG presents the best value of the group.

The total score range shrinks when dividend yield is not included in the value measure.

Based on the comparison of these value measures IAG, GFI and HMY present the best value of the group. I find it interesting that the three smallest gold miners by market cap have the same total score. Given the results, you may decide to adjust the weight of each measure based on your preference, to help differentiate the companies in the comparison.

Opportunity and Risk Comparison

To assess opportunity and risk for capital gains or loss, the table below compares the current stock price to the 52 week high and low. Delta values are derived and then presented in dollars and percent. These values represent the potential upside and downside based on a comparison to the stocks historical price range over the last year. This assumes that the 52 week low represents the potential future low and the 52 week high represents the potential future high.

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Expanding upon the Opportunity and Risk Comparison

To account for dividend yield offered by each company the table below compares the same measure while combining the downside percentage with the yield percentage. This further assumes that the dividend is sustainable.

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**Note: The Downside after yield measure of each company appears low; all less than 10% after yield. The upside measure appears very high; all greater than 65%.

To develop a single Opportunity-Risk adjusted measure, the table below combines the Upside percentage with the Downside percentage After Yield. A single measure allows for easier comparison.

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To account for the potential of greater downside, the table below applies an additional factor to the downside percentage.

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Interpreting the Comparison

Based on the Upside plus Downside measure IAG appears to offer the best opportunity-risk profile followed by HMY and BVN respectively. It should be noted that while IAG offers the greatest upside by this measure, it also presents the largest downside risk before dividend yield. After dividend yield, HMY presents the largest downside risk. BVN presents the lowest downside risk based on this comparison.

In general, Small Cap companies present higher risk, while Large Cap companies present lower risk. With this considered, one may view the unadjusted or 5x downside adjusted measure appropriate for Large Cap companies and 10x downside adjusted measure appropriate for Small Cap companies.

The table below highlights the above measures when considering risk based on market cap. Relevant measures appear highlighted in gold.

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Based on this comparison, it appears Small Cap IAG and BVN offer the best opportunity-risk profile when comparing current stock price to historical highs and lows and adjusting for risk associated with market cap.

Considering the Value Measures with the Opportunity and Risk Comparison

IAMGold ranked first when combining all value measures considered including yield, and tied for first with Harmony Gold and Buenaventura Mining Company, shown as Compa in tables (or BVN) when yield was removed.

IAMGold recently beat cost guidance in the first quarter.

Compa is just above the 52 week low after an earnings miss and lower production.

Harmony Gold has seen similar results after an earnings miss.

IAG recently announced a semi-annual dividend of $0.125 per common share; therefore, I believe inclusion of dividend yield is appropriate when considering IAG as an investment.

IAG tied for first in the Opportunity-Risk comparison. It offers the greatest upside by this measure when the downside is not factored. Based on the Value measures and the Opportunity-Risk comparison of the stocks reviewed per the results of the Gold stock screen, IAG appears to be the most investment worthy.

Disclaimer: The data presented is the result of a stock screen performed on yahoo finance on 6/8/2013. It is believed to be accurate and current as of market close, 6/7/2013. All other values presented; delta values, percentages, upside, downside, opportunity-risk, etc. were calculated using excel, by me. They are believed to be accurate but are without guarantee. The Opportunity-Risk comparison is not a commonly accepted value or analysis technique. It is something I did to derive a common measure for comparison.Some view small cap companies and gold miners in general, as very high risk, with 100% loss potential, due to the pressures of current gold prices, country risk, operating risk, etc. Please consider all risks prior to making any investment. I am not a financial advisor. The information presented is not a recommendation to buy any stock. I implore you to do your own research and derive your own conclusions. I choose to perform this review, as I was interested in gold miners as a potential investment. I am long IAG per the above and other factors.

Source: A Gold Stock Screen And Comparison