Gold miners have been one of the poorest performing sectors of the market in 2012. Concerns about higher production costs and gold prices that are down from the highs of the year have had major negative impacts to the prices of gold mining stocks across the board. Mining giants like Newmont Mining (NEM) and Barrick Gold (ABX) are both down over 30% from earlier in the year. Both are solid bargains and look like they are trying to bottom, but my favorite large miner is AngloGold Ashanti Limited (AU).
"AngloGold Ashanti Limited primarily engages in the exploration and production of gold. It also produces by-products, such as silver, uranium oxide, and sulfuric acid. The company conducts gold-mining operations in South Africa; continental Africa, including Ghana, Guinea, Mali, Namibia, and Tanzania; Australia; and the Americas, which include Argentina, Brazil, and the United States." (Business description from Yahoo Finance).
Six reasons to pick up AU at under $32 a share:
- After falling for months, consensus estimates for FY2012 and FY2013 have popped up some 4% to 8% over the past thirty days.
- The stock is selling at the very bottom of its five year valuation range based on P/B, P/E, P/S and P/CF.
- The median price target on AU by analysts is $48 a share, more than 50% above its current price. HSBC has a $71 price target on the stock.
- The stock is cheap at just over 7 times forward earnings, very cheap by historical standards. It also has grown revenues north of 13% on average over the past five years.
- The company more than quadrupled operating cash flow from FY2009 to FY2011.
- The stock looks like it trying to bottom here and is down some 30% from its highs earlier in the year (See Chart)