Gold and precious metals have always been considered a stable investment, but over the past few years, their value has taken on a whole new meaning. With the still shaky stock market, more investors have been turning to such investments in order to balance out, or even increase, their portfolio value. Gold has recently reached another six-month high, and many in the industry expect it to continue its upward momentum - possibly even surpassing its 2011 high.
This forward movement in gold price could essentially bring on an overall bull market for the entire mining and metals industry. And, given the government's quantitative easing initiative, investors may have even more reason to stock up on precious metals. Silver Wheaton (SLW), Freeport-McMoRan (FCX), Goldcorp (GG), Barrick Gold (ABX), and Agnico Eagle Mines (AEM) could all end up being a smart choice for gains in the mining sector in the coming months. Lets take a look.
Silver Wheaton: A Shining Star?
In conjunction with its subsidiaries, Silver Wheaton operates as a silver streaming company worldwide. As a part of the metals and mining industry, the company possesses a market cap of just over $14 billion. With its P/E ratio of approximately 25, Silver Wheaton exceeds the average S&P 500 P/E ratio of just under 18.
So far this year, investors in Silver Wheaton have been well rewarded, with a nearly 37% increase in share price for 2012 year to date. This may be due somewhat to the slight 2.74% increase in net operations cash flow of approximately $173 billion for the second quarter of 2012, as compared to the second quarter of 2011.
Another key catalyst in the rise in Silver Wheaton's share price also likely comes from the substantial gross profit margin of 86% - even though this actually represents a decrease from 2011's net profit margin of just over 70%. In both time periods, Silver Wheaton's gross profits have performed significantly higher as compared to the metals and mining industry as a whole.
Although there are a number of good buys in the overall industry, I feel that Silver Wheaton stands above many of the others. Shares of the gold and copper mining company Freeport-McMoRan are down roughly 40% from their 2011 high.
Adding fuel to the fire here are continued worker disputes at the company's Indonesia unit, where recently angry employees set fire to nearby cars and smashed windows at the plant during a prayer service for a deceased company employee.
The company shouldn't be completely written off, though, as investors could pick up a good value and ride the expected precious metals bull market back up. A buy at below $40 per share could represent a good opportunity. In addition, the company's 3.1% dividend yield could also allow income while waiting for an increase in share price.
The QE3 initiative, along with the potential of economic stimulus from worldwide banks, has also had a positive effect on metals and mining companies such as Goldcorp. Although the price of gold has risen quickly again, there is expectation of a pullback in price before it continues on an extended move up. With this in mind, it may be a good idea for investors to wait on any further purchase of Goldcorp until share price dips to $40 or lower. In this case, Goldcorp could represent a great value.
Another one to at least keep an eye on in the metals and mining industry is Barrick Gold. Earlier this year, the company's top spot changed when Jamie Sokalsky replaced Aaron Regent as CEO, causing a slight shake up at the firm. Sokalsky's primary goals are to refocus the company on driving returns as cost inflation causes the development costs at the company's Pascua-Lama to surge upward.
On the bright side, the firm's plant at Pueblo Viejo has begun production, with an estimated share of production throughout the first five years of between 625,000 and 675,000 ounces of gold. Once the facility attains its full operation, total cash costs per ounce are expected to be somewhere between $300 and $350.
Here again, this company's stock has seen upward momentum of late - however, it is advisable for investors to take a wait and see approach with this one and consider shares on the anticipated upcoming pullback.
Agnico Eagle Mines is in a somewhat similar position. With gold mining operations located in areas such as Mexico and Canada, the company has higher wage production costs in Canada, yet fewer "red tape" requirements in Mexico regarding mine operations. The company possesses a market cap of just over $8.6 billion, and offers investors a respectable quarterly dividend of $0.20 and a dividend yield of approximately $1.60.
Recently, the company's board approved the construction of a new mine in Sonora, Mexico, that will be developed as an "open-pit," heap leach operation with construction costs estimated at $158 million. This new mine's production is anticipated to begin in the second half of 2014. With the increase in gold prices, it is likely, however, that foreign countries will increase taxes on companies that mine this metal.
The Bottom Line
Given the recent six-month high price of gold, all metals have essentially gained momentum. And, although Silver Wheaton's shares have been somewhat jumpy of late, I feel that the strengths of the company far outweigh this particular factor.
The firm has continued to produce solid revenue growth, along with keeping a reasonable amount of debt level by most accounts. Coupled with that, Silver Wheaton possesses a good cash flow from its operations, allowing for a nice return on equity and expanding profit margins. All of this combined has led the company shares to an increase of nearly 37% year to date - a nice reward for the company's investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.