By Eric Burgett
Gold has resumed its climb towards $2,000 per ounce. An ounce of gold was recently trading for just under $1,800, a mere 6% below the all time high of $1,923.70. After gaining almost 30% in 2011, investors need to decide whether gold has run its course or if it has more room to run. Below, we discuss five gold stocks to help determine whether they are still worthwhile investments. As always, use this analysis as a starting point for your own research.
Goldcorp Inc. (NYSE:GG): Shares were recently trading around $54, in the upper half of its 52-week trading range of $39.04 to $56.31. This share price gives Goldcorp a market capitalization of $43.44 billion. Over the past twelve months, Goldcorp has reported earnings per share of $1.97. The company pays a dividend of $0.41 per share, which provides investors with a yield of 0.80%.
Goldcorp has a story that matches the performance of gold over the past year. It is trading near the top of its 52-week trading range. It is also growing revenue at a fantastic clip—47.8% quarterly revenue growth over the past twelve months. It has stellar margins, with a gross margin of 63.12% and an operating margin of 42.53%.
Those figures are almost identical with those of competitor Barrick Gold (NYSE:ABX), who has achieved a year over year quarterly revenue growth rate of 44.4%, a gross margin of 62.04% and an operating margin of 46.69%. If you have to choose between the two, take Barrick just because of the slightly better dividend. Otherwise, Goldcorp is a great buy in the gold sector.
Great Basin Gold, Ltd. (NYSEMKT:GBG): Great Basin’s shares recently traded at $1.41, right near the bottom of its 52-week trading range of $1.31 to $3.32. The company’s has a market capitalization of $669.75 million at this price. The company has reported a loss of $0.09 per share over the past year. Great Basin does not currently pay a dividend.
At first glance, Great Basin Gold may look to be worthwhile. With just a minimal amount of digging, pun intended, this mining stock shows its true colors. Great Basin has been able to generate revenue growth over the past twelve months at a nice rate of 49.5%. Compare this to competitor Newmont Mining’s (NYSE:NEM) growth rate of just 5.7%. Great Basin’s gross margin of 37.97% is a little light compared to some of the bigger plays in the sector, such as Newmont’s gross margin of 62.47%.
The flashing warning sign, however, is the company’s operating margin of negative 8.85%. Newmont and Barrick Gold both have operating margins over 40%. Great Basin should be considered a sell, which is somewhat reflected in its current share price.
Eldorado Gold Corp., Ltd (NYSE:EGO): Eldorado’s shares were recently trading for about $19. This price puts it in the upper half of its 52-week trading range of $13.34 to $22.12. At this price, the company has a market capitalization of $10.64 billion. The company has reported earnings per share of $0.41 and pays a dividend of $0.12 per share—which equates to a yield of 0.60%.
While Eldorado has a quarterly revenue growth rate that is about half of that of some of its competitors, it is maintaining margins at comparable levels, making Eldorado an interesting situation. Eldorado’s growth rate over the past year is 21.8%. Competitors such as Barrick Gold and Great Basin Gold have growth rates of 44.4% and 49.5%, respectively.
Eldorado achieved a gross margin of 65.38% and an operating margin of 40.56%. These margins are comparable to those of Barrick and Newmont Mining (Barrick had gross/operating margins of 62.04%/46.69% and Nemont posted margins of 62.47%/41.64%). If you believe that Eldorado’s growth rate will improve to the same level of these competitors, you could be in for a nice return.
Yamana Gold, Inc. (NYSE:AUY): Shares recently traded around $16, near the upper end of its 52-week trading range of $10.88 to $17.47. This price gives the company a market capitalization of $12.25 billion. Over the past twelve months, Yamana has reported earnings per share of $0.80. The company’s dividend of $0.80 per share yields 1.10%.
Yamana Gold has similar margins as Goldcorp and Barrick, but exceeds both of their quarterly revenue growth rates. Yamana has grown revenue at 63.2% over the past twelve months while Goldcorp has grown at 47.8% and Barrick has grown at 44.4%. This has also allowed it to outshine both on gross margins. Yamana achieved a gross margin over the past twelve months of 65.7%, which is comparable to, but higher than, both Barrick (62.04%) and Goldcorp (63.12%).
Where Yamana comes up a little short is in its operating margin. It has underperformed only slightly, but it is noticeable. Yamana’s operating margin of 39.73% sticks out when compared to that of Barrick (46.69%) and that of Goldcorp (42.53%). Yamana is a buy.
AngloGold Ashanti, Ltd. (NYSE:AU): Shares of the company recently traded around $48.50, on the upper half of its 52-week trading range of $38.97 to $52.86. At this price, the company carries a market capitalization of $18.70 billion. The company has reported earnings per share of $1.88 over the trailing twelve month period. It currently pays a dividend of $0.24 per share, providing a yield of 0.50%
AngloGold Ashanti also has had some trouble growing revenue. Over the past twelve months, AngloGold has increased quarterly revenue by just 11%. As mentioned before, Yamana grew revenue over that same time frame by 63.2%, Goldcorp has grown at 47.8% and Barrick has grown at 44.4%. That is a significant difference. It is also achieving lower margins than its competitors.
AngloGold has posted a gross margin of 36.4% and an operating margin of 24.01%--both significantly lower than those achieved by its competitors. (Barrick had gross/operating margins of 62.04%/46.69% and Goldcorp had margins of 63.12%/42.53%.) Until AngloGold improves its numbers, I would invest in either Barrick or Goldcorp.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.