Over the last several years the price of gold has been climbing to all-time highs. This is from uncertainty surrounding the global economy and increasing demand in developing nations (i.e. India / China). For many of the gold mining stocks this is an opportunity for these companies to increase their overall bottom line numbers. However, the problem is that earnings have been different among the various firms. To determine which ones have the greatest potential in 2012 requires examining Yamana Gold (NYSE:AUY), Angico Eagle Mines (NYSE:AEM), Goldcorp (NYSE:GG), Randgold Resources (NASDAQ:GOLD) and Kinross Gold (NYSE:KGC).
Yamana Gold trades at a forward price earnings ratio of 12.18. The company has revenues of $2.14 billion, $570.49 million in cash and $430.91 million in debt. These figures highlight how the stock is undervalued in comparison with the markets. The firm had trouble meeting the earnings projections during the first quarter of 2011 (as the company missed analysts' estimates by $.01 coming in at $.21 versus $.22). This is when investors punished the stock by selling shares lower. However, since that time the firm was able to continually beat these numbers. This has created a buying opportunity with the company trading below the forward price earnings ratio in relation to the Dow Jones Industrial Average of 13.47. While the balance sheet is illustrating, that Yamana Gold has the ability to increase earnings dramatically and potentially pay down debt. From a technical standpoint, the stock is trading above the 200 day moving average of $13.88 and has touched support levels of $14.00 per share. The recent sell off was sparked by declines in the price of gold and weakness in other competitors. As a result, this is presenting investors with an opportunity to enter the company based upon the potential for improving earnings from higher gold prices in the future. Over the next 12 months, Yamana Gold could break through $20.00.
Angico Eagle Mines
Angico Eagle Mines trades at a forward price earnings ratio of 11.98. The company has $1.81 billion in revenues, $261.34 million in cash and $660.65 million in debt. During the past year, the firm has seen unstable earnings that have been rising or falling on a quarterly basis (see the below table).
Earnings per Share for Angico Eagle Mines
These figures are indicating how the price of the stock is undervalued with the forward price earnings ratio trading below that of the markets. The problem is that the balance sheet is filled with debt and there is no earnings consistency. At the same time, the technical factors are indicating that shares are facing tremendous amounts of pressure. This is from the stock trading well below the 200 day moving average of $57.19. As a result, this is a sign that the company will have continuing selling pressure until the issues with earnings and the current debt levels are addressed. This is when Angico Eagle Mines will have more stability (which will lead to an increase in share prices).
Goldcorp has a forward price earnings ratio of 14.74. The company has $5.23 billion in revenues, $1.48 billion in cash and $726.00 million in debt. In the past year, the earnings have been volatile by coming at $.57. Then falling to $.50 per share, before these figures started rising to $.57 (in the last quarter). This is illustrating, how the stock is overvalued in comparison with the markets and the instability in earnings. However, the balance sheet is in good shape. This means that the company can withstand a number of issues. Technically speaking, the price is below the 200 day moving average of $49.47 (which is considered to be a bearish pattern). These factors are showing how the company is facing increased amounts of volatility from a lack of clarity in earnings guidance and high valuations. As a result, it is advisable to wait for a lower forward PE ratio (in comparison with the markets), more earnings stability and a consistent pattern of rising prices (with a close above the 200 day moving average). However, over the long term I think this stock is a winner
Randgold Resources trades at a forward price earnings ratio of 15.32. The company has revenues of $964.01 million, a cash position of $441.21 million and $2.79 million in debt. During the last year the corporation has seen consistently rising earnings per share ranging from $.29 to $1.22. In the last three quarters the earnings per share number has risen by 225%. This has helped to give the firm higher valuations (for the forward PE ratio) from the solid growth the company is experiencing. The balance sheet of the firm is outstanding with low amounts of debt, high revenues and a large cash position. While the technical indicators on the stock are bullish, as prices are trading above their 200 day moving average of $95.32. These factors are showing how Randgold has the fundamentals and momentum to trade higher. As a result, the stock could easily break the all-time high of $120.73.
Kinross Gold trades at a forward price earnings ratio of 10.15. The balance sheet of the firm includes revenues $3.91 billion, $1.88 billion in cash and $1.44 billion in debt. Moreover, Kinross Gold has been seeing consistently increasing earnings over the last 52 weeks ranging from $.13 to $.24. These figures are illustrating how the company has the ability to deliver high levels of earnings growth. However, the markets have oversold the stock in comparison with the Dow Jones Industrial Average (based on the lower forward price earnings ratio). At the same time, the balance sheet is highlighting how the company has the potential to pay down debt or repurchase shares. This is when the price could move higher over the long term. The technical factors are illustrating that company is in a bearish pattern. With shares trading below the 200 day moving average of $15.05 and the volume is considerably light (which is indicating a lack of conviction among buyers). As a result, the stock could see near term pressure before the markets realize that the company has solid fundamentals. This is when there could be strong upward momentum. For precious metals investors who are more keen to approach silver as an investment in lieu of gold miners, see my analysis on that subsector's best deals. Please note: the analysis of the above companies should be used as a starting point for any kind of further research.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.