Raymond James Analysts: Be Selective When Choosing Gold Stocks

In order to take advantage of good times besetting the red hot gold and silver market, equity investors need to be selective, say Raymond James analysts Bart Jaworski and Brad Humphrey.

In a note to clients they said:

In the most recent bull market there has been significant disparity in the performance of gold and silver stocks versus bullion prices, highlighting that investors must select precious metal equities cautiously.

They also initiated coverage on nine new precious metal companies.

Mr. Jaworski and Mr. Humphrey told clients that investors should focus on companies with above average growth profiles, strong management teams and quality assets. They added that the typically weak summer months offer a great opportunity to add quality positions, noting their top picks include Eldorado Gold Corp. (EGO), Great Basin Gold Ltd. (GBN), Lakeshore Gold Corp. (LSGGF.PK) and Pan American Silver Corp. (PAAS).

The two analysts also said the outlook for gold and silver continues to look good. They predict an average gold price of C$940 per ounce in 2008, with average prices in the second half hitting C$980 per ounce.

They wrote:

Although the spotlight has been on U.S. dollar weakness, we believe investors are increasingly viewing gold as an inflation hedge and safe haven as oil and food prices hit record highs in most countries around the world and investor anxiety remains elevated.

Mr. Jaworski and Mr. Humphrey said silver prices will also stay strong, despite a near term increase in mine supply. They expect silver prices to average C$18.75 an ounce in the second half on the back of the strong gold market, resilient industrial demand and strong investor sentiment.

Comments

[Larry House:]

Can someone explain why AUY would not be in that group of better mining stocks? From what I understand, it would fit the stated criteria as well. What am I missing?

2008 Jun 10 02:17 PM

[Mongoose:]

LarryH, I think you have one of the better picks. My choices are AUY, KGC,GG and a spec CSS. You are in a better stock than EGO. Good Luck.

2008 Jun 10 04:51 PM

[d_teller:]

I agrre with LarryH, (and 'mongoose") and hold AUY as a result of several of its buyouts of Meridian and, originally, DesertSun.

But I believe there are three problems with the reviews by analysts...they have a limited number of companies' data; their company may have positions that it wishes to support or short; and they often use incomprehensible metrics for comparison.

I get feeds from Ford, Ativo, White, S&P, Channel Trend, and many others, and am often surprised by the selection of comparable companies from some BIR grouping, which makes comparisons of apples, pears, tangerines, lemons, and grapes under a broad category of "Fruit".

Perhaps Yamana's recent acquisitions and growth have made the "fundamental analysis" extremely difficult.

2008 Jun 10 08:16 PM