While the latest jobs report is bad news for most companies, there is one sector that isn't taking as hard of a hit: gold. Goldcorp (GG) is a great example of a gold company investors ought to look closely at right now. Due to the safe nature of gold in tough economic times, as well as the specifics about Goldcorp itself that make it attractive, I think Goldcorp is a superb investment opportunity right now.
Currently trading at around $39, Goldcorp's stock rose nearly 10% on June 1, a day when pretty much the rest of the market was down. In general, gold gained 3%, the most it has gained in one day in almost three years. When the market is volatile and the economy is bad, it's tough to know where safe investments lie. Often, people look to pretty stable, safe commodities like gold, so it is no surprise to see the rally of Goldcorp's stock in particular as well as gold stocks in general. The latest economic news even prompted one investor to note that we could see large-scale institutions and even universities decide to buy into gold, fearing an even deeper economic downturn.
The poor economic picture painted by the jobs report means this could be just the beginning of a rise in gold stocks. One hedge fund manager noted that should the federal government intervene in the economy once again, via another stimulus package or similar legislation, investors would flock to gold stocks. This is because doing so could affect the value of the dollar, inflation could go up, and gold could be seen as a safe investment to guard against the plunging dollar.
But there's a lot of gold companies out there. Why Goldcorp? For one thing, Goldcorp has a very favorable view from Fitch. The ratings agency is confident in the "substantial reserves" of the company. The company is expanding at a time many companies are contracting, and that's clearly a good sign. In fact, Goldcorp says its production levels are on schedule to rise 70% over the next half-decade or so. Based on Fitch's rating, another analyst believes the stock could rise 40% higher, reaching the mid $50 level. The investor cited a recent coup in Mali as a reason to perhaps be concerned over one of Goldcorp's competitors, Randgold Resources (GOLD). And while Newmont Mining (NEM) also was a big gainer on news of the jobs report, there are environmental concerns with a potential mining project in Peru. In addition, things seem to be a bit more volatile for Barrick Gold (ABX), as recent activity has suggested it could have some financial issues. However, another competitor, AngloGold Ashanti Limited (ADR) also has a lot of buzz around it right now and could be another good option.
Another reason Goldcorp could be a great investment is the fact that, quite simply, it doesn't have all of its eggs in one basket. That is, according to company numbers, no one mine is set to comprise more than 18% of total production for the next four years. So if an issue arises at one of its mines, it should not handicap the company too badly. This seems like a great strategy to me, especially given the volatile times we live in.
But to me, the biggest reason Goldcorp looks great right now is the fact that it chooses to mine only in regions that are politically stable and have little unrest. Contrast this with the problems Randgold is seeing after the coup in Mali, and it's easy to see why this makes sense. According to the company's website, Goldcorp's mines are in production (in order of volume) in Canada, Mexico, Guatemala, the U.S., Argentina, and the Dominican Republic. Despite the back and forth vitriol spewed by our politicians, I don't think we have to worry about a coup here. The company makes a point of where it chooses to mine on its website:
"Fruitful partnerships take most fertile root in those regions with well-established judicial, political and economic institutions," the website states. "Our mines and projects are located in regions where mining has been practiced for generations, where it is a proud profession and well-understood tradition. This is a deliberate emphasis ... "
Investors agree, and I think it's a great strategy on the part of Goldcorp. Finally, Goldcorp could potentially be a smart investment because of its potential demand in China. Demand for gold in the country could rise as much as 30%. As China continues to see significantly higher growth than U.S./European nations, perhaps it will set aside a good chunk of its significant capital to invest in gold, attracted to the stability it provides. Albert Cheng, Far East managing director of the World Gold Council, believes China could be the world's No. 1 in terms of gold demand by the end of this calendar year. According to Cheng, China will compete with India for this. Either way, gold stocks win, especially Goldcorp, which should be seen as safe thanks to the aforementioned location of its mines.
I suppose how much you're willing to invest in Goldcorp could depend somewhat on your outlook of the future prospects for the global economy as a whole. I hate to be pessimistic, but the future doesn't seem very bright. If you share this pessimistic attitude, it could be a great time to get involved with gold stocks. And if you're going to get involved with gold stocks, it seems to me that the best, safest one is Goldcorp. Since gold is relatively stable in times like these, and since Goldcorp's mines are not in politically unstable regions (which could be even more beneficial if the economy continues its downturn, as political unrest could be common), I am very optimistic about the future prospects of Goldcorp.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.