Gold has been in a bull market for about ten years. Every once in a while it's normal for the precious metal to have healthy corrections, and also sometimes pause before regaining the momentum to push higher. Gold set new records in 2011, but more recently it has been taking a break. In the short-term, gold looks susceptible to correction from time to time. A recent CNBC article details the potential for a short-term correction in gold, as well as the longer term upside:
"The four-month slump in gold and other metals by nature is setting up a buying opportunity somewhere on the horizon, but it could be months before a solid entry point materializes." The article goes on to state: "Gold overall will continue to perform well in the next, say, 10 years," said Shelley Goldberg, director of global resources and commodities strategy at Roubini Global Economics in New York. "But you're going to see tremendous volatility, you're going to see a sell-off like you've seen in the last couple of weeks."
Patient investors should wait to buy gold stocks when the metal has corrections. This could maximize gains and prepare your portfolio for what should be a continued steady, long-term climb for the precious metal. As central banks around the world print currency and continue with loose money policies, gold should be a solid asset class for many years. Furthermore, emerging market countries could create increasingly higher demand for gold in the future, as consumers in these countries generate wealth and disposable income that was not possible in the past. For example, India has already become the world's largest consumer of gold. Countries like India are expected to see solid growth for years to come and that should keep a constant bid under gold. The stocks below are considered by many investors to be "Blue Chip" stocks for the gold sector due to strong balance sheets, management team, industry position and level of gold reserves that these companies have. These various factors make these stocks a lower-risk way to invest in this sector. Here are a number of gold stocks that are poised to benefit from the long-term uptrend in gold.
Goldcorp (NYSE:GG) has gold, silver, copper and other mining operations in Canada, the United States, Mexico, and Central and South America. This company has a lot going for it. A strong management team, and a solid balance sheet have made Goldcorp a top pick for many investors. It has mines and operations in politically stable countries and this reduces some of the risk that is inherent with many other gold stocks. These shares offer a 54 cent per year dividend which yields 1.2%. Goldcorp is expected to report earnings on February 15, 2012, so it makes sense to hold off on buying shares until the company provides this financial and operations update. Many stocks see large drops after reporting even a slight miss and this type of drop could provide a better buying opportunity. This stock has recently found support at about $42 per share, so buying at that level would be an ideal entry point.
Here are some key points for GG:
- Current share price: $45
- The 52 week range is $41.91 to $56.31
- Earnings estimates for 2011: $2.23 per share
- Earnings estimates for 2012: $2.69 per share
Newmont Mining Corporation (NYSE:NEM) is a gold exploration and mining company with operations in United States, Australia, Peru, Canada, New Zealand, and other countries. Newmont shares offer a dividend of $1.40 which yields 2.3%. This stock also trades at a reasonable valuation at just about 11 times forward earnings estimates. Many gold stocks trade at a much higher price to earnings ratio, which means that multiple expansion could push these shares higher in the future. Newmont also has one of the strongest balance sheets in the industry and the stock has a book value of $28.01 per share. All these factors, plus the geographic diversity of Newmont's mining operations makes this a lower risk way to invest in gold mining stocks. Buying shares of Newmont on pullbacks is likely to reward long-term investors.
Here are some key points for NEM:
- Current share price: $58.77
- The 52 week range is $50.05 to $72.42
- Earnings estimates for 2011: $4.63 per share
- Earnings estimates for 2012: $5.44 per share
Iamgold Corporation (NYSE:IAG) is a gold exploration and mining company with 5 gold mines in North America, South America and Africa. This company has a superb balance sheet with no long-term debt and just over $1 billion in cash. This puts Iamgold in a position to make acquisitions and develop mining operations whenever opportunities arise. Having over a billion dollars in cash also makes this a lower risk stock when compared to many highly leveraged gold companies. This stock pays a 25 cents per share dividend, which yields 1.5%. These shares could have additional upside from a recent discovery of rare earth deposits in its Quebec, Canada mine. The company plans to consider strategic alliances or a joint venture to develop these assets further.
Here are some key points for IAG:
- Current share price: $16.24
- The 52 week range is $14.69 to $23.88
- Earnings estimates for 2011: $1.21 per share
- Earnings estimates for 2012: $1.39 per share
Royal Gold, Inc. (NASDAQ:RGLD) owns mining interests and royalty contracts on many gold mines which produces a constant stream of income. These royalty deals have additional upside potential if reserves and production increases in the future. This business model reduces many of the financial risks that traditional gold companies have, such as mining risks, employees, and many other expenses that create high overhead. Royal Gold has a strong balance sheet which enables it to seek new royalty agreements that could generate high returns in the future. This stock pays a dividend of 60 cents per share which yields .9%. The recent trading range for this stock has been around $68 to $77 per share, so the stock is now near key support levels. Buying on pullbacks makes sense.
Here are some key points for RGLD:
- Current share price: $69.73
- The 52 week range is $47.63 to $83.87
- Earnings estimates for 2011: $1.89 per share
- Earnings estimates for 2012: $2.40 per share
NovaGold Resources, Inc. (NYSEMKT:NG) is a Canadian gold exploration company with projects in Canada and Alaska. This company has been a favorite stock with many hedge funds, probably due to the "Donlin Gold" project which has about 42 million ounces of gold reserves. This is one of the most significant gold reserves in the world and it gives this stock significant long-term potential. Novagold recently raised capital by selling about 35 million shares at $9.50 each. This appears to have pressured the stock ever since the offering closed on February 7, 2012. The shares are already below the offering level, so and additional pullbacks look like a solid buying opportunity.
Here are some key points for NG:
- Current share price: $8.71
- The 52 week range is $5.93 to $14.85
- Earnings estimates for 2011: a loss of 21 cents per share
- Earnings estimates for 2012: a loss of 19 cents per share
Yamana Gold, Inc. (NYSE:AUY) has gold exploration and mining with projects in Brazil, Chile, Argentina, Mexico, and Colombia. This company has 3 mines in development and 8 mines that are currently producing gold. All of these projects are located in South America which is considered to be a politically stable area. Yamana pays a 20 cent per share dividend which yields 1.2%. This stock recently hit new 52 week highs but has since pulled back. It has been finding support around the $14.50 level, so buying around that level makes the most sense.
Here are some key points for AUY:
- Current share price: $16.10
- The 52 week range is $11.10 to $17.97
- Earnings estimates for 2011: 96 cents per share
- Earnings estimates for 2012: $1.22 per share
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment adviser and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial adviser.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.