By Michael Williams
Given the traditional inverse relationship between gold and Wall Street, investing in gold stock seems to be a paradox. Because many investors use it to protect against inflation, the gold price frequently rises when stock prices fall. In spite of this, gold stock values move separately from the price of the yellow precious metal, giving investors the opportunity to capitalize on both rises and falls in the market.
With the economic problems of the past five years, many people have invested a larger percentage of their portfolio in gold. For those who don’t plan on gold the metal or understand how to purchase futures, gold stock is a great alternative. Some of the top companies to watch in 2012 are Goldcorp Inc (GG), Yamana Gold Inc (AUY), Newmont Mining Corp (NEM), Barrick Gold Corp (ABX), and Randgold Resources Ltd. (GOLD) Each of these mining and exploration companies offers solid gains and a unique investment opportunity for people who are looking to expand their portfolios.
Goldcorp is another of the highly successful mining and exploration companies located in western Canada. The company has experienced steady growth over the past five years, with its share price increasing by 75% during that period. Positioning for another strong run going forward, GG has an earnings-to-growth ratio of 0.45 and its moving average suggests that it is undervalued.
Since a drop in share price in November 2011, GG stock price has stayed well below both the 50-day and 200-day moving averages. It is well below its one-year estimated target, with prices expected to rise from its current price of $44.66 to $67.76 for an increase of over 50%. Goldcorp’s PER of 11.54 indicates that investors should look at it in the days ahead.
Yamana Gold Inc
Although it doesn’t carry the clout of some of the other large-cap companies, Yamana Gold Inc is still a very solid investment and a great opportunity at an affordable price. Yamana followed a solid 12.5% of free cash to sales in 2010 with an even better 16.8% in 2011. This is important, considering that production costs have the biggest impact on a mining and exploration company’s profitability, since sales price is set by the market.
Running between its 50-day and 200-day averages, AUY looks ready to break out for a nice profit in 2012. Known for paying a dividend (0.20) and producing a yield, (1.30%) the company has a PEG of 25.83 and a one-year estimated target of $19.60, or a 24% increase. Currently near its 52-week midpoint, a strong move like that would be ideal for a smaller investor looking forward to adding a precious metal stock to his or her portfolio.
Newmont Mining Corp
Large-cap Newmont Mining Corp is a well-established company. Founded in 1916 and located in Colorado, NEM has operations in a number of countries worldwide. It boasts proven and probable gold reserves of nearly 93.5 million equity ounces. The company had a hefty earnings per share of $4.39 and a yield of 2.30% while handing out a $1.40 dividend.
The news on NEM is somewhat mixed going forward. With its promising new Conga Project in Peru to increase its potential in 2012, the company only has a PEG of 3.19, leaving some to question its growth in the upcoming year. It stacks up well on a growth basis against competitors like IAMGold (IAG). That said, the stock is trading near its 52-week midpoint at $61.55, and its one-year target estimate of $80.45 represents a gain of almost 31%. Most analysts see it as a solid holding for the year, but want to see Newmont improve its growth rate before hailing it as a strong performer.
Barrick Gold Corp
One of the best-known mining and exploration companies, Barrick Gold Corp advertising shows up frequently in various mediums. At 47.7 billion, this Toronto, Ontario-based company is definitely a large-cap stock that continues to impress as an investment option. ABX has a profit margin (ttm) of 31.05%, a dividend of 0.60 and a yield of 1.30%.
Tracking below both its 50-day and 200-day moving averages, Barrick seems poised for a breakthrough. Hardly flying below the radar, most analysts see Barrick as a strong buy. For 2012, the prevailing opinion is that the company’s EPS will climb nearly 50% to $4.91, with additional double-digit growth in 2013 and 2014. This belief is supported by a steady PEG of 2.74, consistent dividend payouts and a one-year target estimate of $67.46, a gain of almost $20 per share.
Randgold Resources Ltd
Located in St. Helier, the Channel Islands, Randgold Resources Ltd is ready to become another of the hot gold stocks for 2012. Founded in 1995, the company performed well in 2011; in fact, Randgold was a top five gold stock, registering a 26.4 return in a year when gold only increased 10%. That ability to produce profit will serve the company well into 2012.
Randgold is currently trading about 10% below its 52-week average, sitting at $107.46 against the upper limit of $120.73. Many analysts expect good things in 2012, with most listing the company as a hold or better. After recording a dividend of 0.18 and a yield of 0.20%, the stock looks to rise again, with a one-year target estimate of $127.68. With a PEG of 11.18 and a forward P/E of 14.82, this mid-cap appears ready to make another run. Increased production in Mali, and the Ivory Coast, has many expecting GOLD to surge even higher, potentially making it a strong investment option.
Getting on Board with Gold in 2012
Much has been reported about gold climbing past its record high during 2011, but the outlook for investors could get even better. In spite of recent setbacks, some analysts are still predicting that gold will soon reach $3,000 per ounce. For those that are able to control production costs, rising price equals larger profits for mining and exploration companies, plus bigger returns for those who invest in the precious metal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.