Cheap Gold Mining Stocks From Excellent First Eagle Gold Fund

by: MyPlanIQ

Gold mining stocks have dropped dramatically recently. In the latest gold bull market, gold mining stocks have not enjoyed the same ride as the spot gold price. They are getting very cheap.

First Eagle Gold Fund (MUTF:FEGIX) is one of the most reputable gold funds that is managed by First Eagle, a fund management company that is famous for its value fund - First Eagle Global Value Fund - known to be very shrewd in using gold and gold mining stocks as portfolio hedges.

The following compares the gold fund's performance against the popular gold miner ETF Market Vectors Gold Miners (NYSEARCA:GDX):

Portfolio Performance Comparison (as of 7/12/2012)

Portfolio/Fund Name 1 Week
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
GDX -8.9% -18.9% -26.7% -74.4% 6.5% 18.9% 0.9% 0.9%
FEGIX -6.1% -13.9% -21.9% -77.3% 9.6% 51.5% 8.1% 26.5%

*: NOT annualized

**YTD: Year to Date

More detailed comparison here>>

First Eagle Gold fund has out-performed the ETF by a big margin, exhibiting the excellent stock picking skills the fund possesses.

The following are some of top holdings the fund has, as of 3/30/2012. Investors who are concerned about the timely holding information can relax as the fund has exceptional low turnover rate: 13%, compared with extremely high average turnover 102%, based on Morningstar.

  • Goldcorp (NYSE:GG)
  • Anglogold Ashanti (NYSE:AU)
  • Kinross Gold (NYSE:KGC)
  • Newmont Mining (NYSE:NEM)
  • Randgold Resource (NASDAQ:GOLD)
  • Fresnillo PLC (OTC:FRES)
  • Barrick Gold (NYSE:ABX)
  • Agnico Mining (NYSE:AEM)

The average price/earnings ratios is 2.84, an extremely low measure. The average price/cashflow is also very low, only 7.03.

A more detailed look at Newmont, the second largest gold miner and one of the top holdings in the fund:

  • Forward P/E: 9.8
  • Price/Cashflow: 7.3
  • Proven and probable gold equity reserve: 99 million ounces (about $148.5 billion worth using spot gold price $1,500 per ounce)

In today's extremely low rate environment, gold has been more and more used as a portfolio hedge for anti-inflation purpose. For example, asset allocation portfolios constructed using gold, US stocks, Treasury bonds have been very effective for the past 20 years. Investors who are interested in using such a portfolio can look at gold (NYSEARCA:GLD), gold mining ETFs (GDX or GDXJ) or individual gold miner stocks. At the moment, these cheap gold mining stocks seem to be better bets than gold miner ETFs or physical gold.

Disclosure: I am long GDX, GLD.