In my first article on gold stocks, we saw that there are some great companies out there putting up some fantastic numbers thanks to the rise in the price of gold. There is no way I could have fit all of the stocks I wanted to discuss in that article alone. Therefore, we will go over the other four I wanted to add in the previous article, today.
Let’s start with a quick review of what I look for when going long. First, I look for the six to seven key characteristics that all of the greatest stocks over the past 130 years have possessed (this can be reviewed in the first article). Second, after identifying these leading stocks and their growing fundamentals, I then turn to the charts to tell me where I should enter my orders.
The fundamentals are the most important ingredient to any great-performing stock, so let’s look at what makes these stocks current and future leaders.
Richmont Mines (RIC) is a Rouyn-Noranda, Quebec, Canada company that engages in the exploration and development of Gold in Quebec and Ontario.
EPS growth has been gigantic the past six quarters with gains of 40%, 120%, 700%, 999%, 286%, and 999%. Sales growth during this time has been impressive as well with gains of 31%, 25%, 53%, 32%, and 42%.
The company has zero debt, a cash flow of $0.56, and a Return-on-Equity of 11%. Richmont Mines is about as solid of a profit-making gold stock as you are going to find out there.
The strong earnings and sales growth is a huge reason why fund ownership has increased from 17 to 39 over the past eight quarters. Management still owns 23% of the shares outstanding, indicating they are invested in making sure this stock price moves higher.
Yamana Gold (AUY) is a Toronto, Ontario, Canada company engaged in the exploration and development of gold properties in South America and Mexico.
EPS growth the past six quarters has come in at 13%, -33%, 45%, 44%, 133%, and 150% . During the past eight months sales growth has accelerated rapidly growing 50%, 355%, 62%, 48%, 36%, 34%, 37%, and 63%. These gains are expected to continue into 2011 and 2012, with annual EPS growth estimates for gains of 73% and 21% respectively.
Neither fund ownership nor management holdings are impressive, as there has been no increasing mutual fund sponsorship over the past four quarters. Management has a 0% stake in the company's success.
Eldorado Gold (EGO) is a Vancouver, British Columbia, Canada company acquiring, exploring, and producing gold and mineral properties in Turkey, China, Brazil, and Greece.
EPS growth the past eight quarters has been 60%, 0%, 125%, 43%, 13%, 0%, 11%, and 40%. During that time sales growth has been even more impressive with gains of 26%, 126%, 248%, 158%, 133%, 47%, 20%, and 22%. Expect that to continue with rising EPS estimates for 2011 and 2012 coming in at 81% and 63% respectively.
Eldorado only has 2% of debt to shareholder equity, a Return-on-Equity of 7%, and unfortunately there is no cash flow number available. Eldorado appears to have a high P/E ratio of 51. However, this is in the lower end of its five-year historical range of 9-309.
Just like Yamana Gold, unfortunately, there is also no meaningful mutual fund growth here, and management has a 0% ownership of the shares outstanding.
Jaguar Mining (JAG) is a Concord, New Hampshire, company engaged in the exploration, development, and extraction of gold in Minas Gerais, Brazil.
This company is a bit more risky than the other nine gold stocks I have previously reviewed, but it is still showing characteristics of a potential leading stock, as it is under accumulation off the August lows.
EPS growth the past two quarters has jumped 325% and 257% as the company turns the corner back to profitability. Sales growth the past eight quarters has been solid with gains of 36%, 42%, 22%, 12%, 38%, 13%, 36%, and 64%. Continuing growth is seen in the future as 2012 estimates are for Y-O-Y gains of 100%.
The company does have debt-to-shareholder equity of 44%, but with a positive cash flow of $0.20 and continued earnings growth that shouldn’t be a problem.
Mutual fund ownership has risen from 130 to 172 funds over the past eight quarters. Sadly, just like Yamana and Eldorado, management doesn’t have any cash in the game -- it owns only 1% of the shares outstanding.
Now that we have the important fundamental data that I need to invest in a stock, I need to go to the charts to tell me where to purchase these shares.
If the market continues to chop around and move lower, I will be looking for these leading gold stocks to find support around the 50-day moving averages and bounce off this area on heavy volume. If that signal does not set up in the stocks mentioned, and they continue to move higher without a pullback to the 50DMA, I will look for a heavy volume pivot-point buy area off the 10-day moving average.
The market has been bouncing lately, and put in an above-average-volume session on Wednesday. Therefore, we have to take into consideration that if the market does rally here, these stocks will probably not lead us higher like they will if we continue to stay in a bearish market environment.
If the market moves higher and gold stocks do not, my personal investment methodology will have me looking for the next leading group of stocks. Medical stocks certainly look like they could be it, based on Relative Strength.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RIC or AUY over the next 72 hours.