The surge in the gold price in the recent months has seen gold stocks leaving the market behind. Below is a list of stocks that have solid prospects. These stocks currently trade around their 52-week highs but could head significantly higher in the months ahead:
Randgold Resources (GOLD): Randgold operates mines in the East and West coast regions of Africa.
The stock is expensive. It trades at 49.5 times its trailing twelve months (ttm) earnings, pricier than Gold Fields (GFI) at 39.7.
The stock has risen more than 30% for the year and is trading near its 52-week high.
Second quarter results were stellar, blowing past analyst expectations. Revenue more than doubled on higher production.
The company has a strong balance sheet with low levels of debt. Long-term debt/capitalization sat at 0.1% for 2010. This ratio has been decreasing dramatically over the last ten years, when it stood at 45.6% in 2001.
Analysts project rapid earnings growth for fiscal 2011. Revenue is expected to soar at least 110% on higher production and gold prices.
Royal Gold (RGLD): Royal Gold operations centers on acquiring and managing royalties for various precious metals mines.
The stock has had a trail-blazing run since late June, rising more than 40%. The stock has risen more than 50% since start of the year. The stock trades at $81.55 and recently hit a new 52-week high of $83.69. Royal Gold is valued at 63.2 times its trailing twelve months (ttm) earnings, the highest valuation of all the stocks on this list.
Fiscal fourth quarter results were excellent, blowing past analyst expectations. Revenue soared 46% and earnings jumped 86% to $0.39 per share over the same period last year. The potent duo of higher production and gold prices were the usual suspects. The company has reported double digit revenue growth for the fifth consecutive quarter.
While prospects for this company seem bright, investors should wait on the sidelines for a better entry point. Analyst firm, Zack’s upgraded the stock’s rating to outperform from neutral.
New Gold Inc (NGD): This Vancouver based company is engaged in gold, silver and copper mining with mines in US, Mexico, and Australia.
The stock is up about 40% for the year and is trading near its 52-week high. It trades at 18.3 times its trailing twelve months (ttm) earnings, expensive compared with Freeport-McMoRan Copper & Gold (FCX) at 7.1 (ttm) and cheaper than Taseko Mines (TGB) at 23.8 (ttm).
June period results were solid. Revenue increased 53% with earnings from mine operations soaring 129% over the same period last year. Increased volumes and lower production costs were the main drivers. Gold sales advanced 15%.
The company completed acquisition of Richfield, which adds the Blackwater project that has established gold resources and significant exploration potential.
Increased production and lower costs coupled with higher gold prices should lead to solid double digit gains for the coming quarters.
Newmont Mining (NEM): Newmont is the second largest gold miner in the world with operations in North and South America, Africa and the Asia/Pacific region. As of 2010, the company had proven and probable gold reserves of 93.5 million ounces.
The stock has underperformed the market by a wide margin for part of the year, only to rise about 22% from mid July. It’s currently up about 5% for the year, trading near its 52-week high and 14.3 times its trailing twelve months (ttm) earnings. AngloGold Ashanti (AU) trades at 22.1 (ttm) and Barrick Gold (ABX) at 13.7 (ttm).
Newmont recently declared third quarter dividend of $0.30 per share, a 50% increase over the second quarter and 100% increase over the third quarter of 2010. Management is considering a share buyback program in an effort to narrow the gap between the rise in gold prices and the company’s share price.
Earlier this year, management announced a change in its dividend policy by linking the dividend to changes in the gold price. Prospects look good for 2012 and beyond as overall production is set rise to seven million ounces by 2017 from the current 5.1 million. A higher gold price over that time frame is a good possibility, therefore earnings and dividend growth should be robust.
Yamana Gold (AUY): The Toronto based miner engages in gold and other precious metals mining. It currently owns 7 gold mines.
The stock trades around $16.28, about 7.4% off its 52-week high of $17.47. It’s valued at 20.4 times its trailing twelve months (ttm) earnings. Rivals, AngloGold Ashanti (AU) trades at 22.68 (ttm) and Goldcorp (GG) at 20.87 (ttm).
The stock has outpaced its rivals and risen about 43% since July and is up about 30% for the year. Shareholders are also being rewarded with a 50% hike in the annual dividend starting in the third quarter.
Second quarter results were excellent with revenue rising 63% and net income soaring 178% over the same period last year on higher production, gold and silver prices.
Management maintained its production guidance for this year. In 2013, production is expected to be 60% higher than last year. Given this scenario and higher gold prices over that time frame, Yamana’s earnings should advance at double digit pace, increasing the likelihood of further shareholder rewards.
Agnico-Eagle Mines (AEM): Agnico-Eagle operates six mines in Europe and North America. The company has proven and probable gold reserves of 21.3 million ounces.
The stock trades at an excessive premium to Barrick Gold. It trades around 37 times its trailing twelve months (ttm) earnings whilst Barrick trades at a modest 13.7 times (ttm). Over the past month the stock has outpaced the market but, the market has the edge for the year.
Agnico-Eagle is set to produce strong earnings for fiscal 2011 given management projection of an 11% rise in gold output coupled with higher gold prices. Prospects for 2012 look brighter as gold output is set rise 18% above this year’s forecast due to several expansion projects at its mines.
The company’s strong balance sheet, exemplified by its low debt-equity ratio, helps it in pursuing acquisitions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.