A recent Bloomberg article summarizes the bullish case for gold prices as laid out by analysts at Goldman Sachs. The investment banking firm believes that the Federal Reserve will engage in additional stimulus programs in June, as the economy shows signs of slowing. The continuation of easy money policies is likely to create renewed interest in precious metals, and Goldman Sachs believes that gold will hit $1,840 per ounce in the next 6 months. The article states:
"In early 2009, we suggested that gold had become the currency of last resort, overtaking the U.S. dollar's status due to the rising risk of sovereign default and debasement concerns," Currie wrote. Even as the U.S. currency advanced and gold fell on the European crisis in recent months, "it is too early for the dollar to reclaim this status," he wrote.
Gold is one of the few assets that can't be printed by central bankers, and with all the debt issues around the world, money printing is likely to continue and in fact, even accelerate. With many gold stocks trading at oversold levels and close to 52-week lows, now could be the best time to accumulate shares in this sector. Here are some top gold mining stocks that could be poised to rebound sharply:
Iamgold Corporation (IAG) has a fortress-like balance sheet with almost $1.1 billion in cash and zero debt. The company is also solidly profitable and it pays an attractive dividend yield. Iamgold even trades for just a small premium to book value which is $9.24 per share, and it is trading for less than half the 52-week high. Thanks to the mindless sell-off which is often the case when margin calls force longs to liquidate at any price, these shares appear to be hugely undervalued. The average stock in the S&P 500 trades for about 13 times earnings and yet Iamgold is at only about 6 times forward earnings today. Iamgold has 5 gold mines in North America, South America and Africa. This company has been acquisitive, but at these levels and with its strong balance sheet, it would not be surprising to see another company offering a buyout of Iamgold. UBS (UBS) analysts have set a buy rating and a $23 price target for this stock, so investors buying now might more than double their money in the coming months.
Here are some key points for IAG:
- Current share price: $10.93
- The 52 week range is $10.50 to $23.88
- Earnings estimates for 2012: $1.31 per share
- Earnings estimates for 2013: $1.62 per share
- Annual dividend: 25 cents per share which yields 2.3%
Market Vectors Junior Gold Miners ETF (GDXJ) provides investors with diversification as it is an exchange traded fund that invests primarily in junior gold mining stocks. It has many stocks in the portfolio, so this reduces the risk for investors. It trades close to the 52-week low and for nearly half of the 52-week high. It has a dividend yield of 4%, which pays investors to wait for higher prices.
Here are some key points for GDXJ:
- Current share price: $20.76
- The 52 week range is $19.62 to $39.50
- Earnings estimates for 2012: n/a
- Earnings estimates for 2013: n/a
Freeport-McMoRan Copper and Gold (FCX) shares have been hit hard and now trade for close to half of the 52-week high. This stock trades for about 9 times earnings and it offers a generous dividend which yields 3.5%. Freeport is a leading producer of precious metals like gold and silver, plus other resources such as copper, cobalt, etc. Freeport is a major company with about $20 billion in revenues. It has a strong balance sheet with around $4.5 billion in cash and around $3.5 billion in debt. This company will benefit from a rebound in both gold and copper prices, and it could gap up at the first signs of strength in either metal. Earlier this year, Morgan Stanley (MS) set a $55 price target for this stock, which would provide gains of about 60%.
Here are some key points for FCX:
- Current share price: $35.31
- The 52 week range is $28.85 to $57.68
- Earnings estimates for 2012: $4.03 per share
- Earnings estimates for 2013: $5.23 per share
- Annual dividend: $1.25 per share which yields 3.5%
Newmont Mining Corporation (NEM) shares also appear very undervalued. With mining operations in the United States, Australia, Peru, Canada, New Zealand, and other countries, Newmont is geographically diversified and it is one of the largest gold producers. The company recently reported solid financial results for the first quarter of 2012. It earned about $490 million or 97 cents per share. However, when one-time items are excluded, earnings were $1.15 a diluted share, up from $1.02 last year. Just a couple weeks ago, analysts at RBC Capital set a $66 price target for Newmont shares. This would provide gains of almost 50% for investors who buy at current levels.
Here are some key points for NEM:
- Current share price: $46.20
- The 52 week range is $43.95 to $72.42
- Earnings estimates for 2012: $4.77 per share
- Earnings estimates for 2013: $5.52 per share
- Annual dividend: $1.40 per share which yields 3.1%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I am long IAG.
