We believe the recent pullback in many of the gold names presents and opportunity for people who have not found an opportunity to get into gold for a while. The correction has been swift from about $1900 to around $1600 per ounce in just a few short weeks.
As long as central governments continue to print more money, gold will hang around and maintain its value and will most likely move higher.
In the gold stock arena, we believe Newmont Mining (NEM) is one of the more conservative names to own. Headquartered in Colorado, Newmont has one of the lower multiples compared with its competitors, trading at 13x forward earnings. It also pays a dividend that is close to 2%, which is always a bonus.
Technically, the stock is is in an uptrend and trading above its 200-day moving average of $57. We would use any weakness to accumulate shares. Support for the stock comes in around $50 for long-term investors.
Given the recent volatility, another name we would consider is Silver Wheaton (SLW).
Trading at 13x forward earnings, SLW may be worth a look. The action in this stock is not for the faint of heart but for conservative option writers, the premiums in SLW are pretty tempting.
Technically, the stock is trading below its 200-day moving average, which is usually a sign of weakness. However, we have seen the stock bounce off $30 on two different occasions this year as you can see from the chart below.
Want to get in the stock at under $26 and reduce your risk? Consider buying the stock at current levels and selling a March $30 call against your position. For every 100 shares you buy, sell one $30 March call option against your position. If the stock holds at $30 or above by expiration, you will make about a 17% return on your money when called away at $30. You also will have a cost basis of under $26, which gives you a 20% cushion from current levels.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
