Gold Stocks Top Fund Managers Are Buying And Selling

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Includes: ABX, AUY, EXK, FCX, GFI, GG, GSS, HL, HMY, KGC, NEM, TRQ, WPM
by: GuruFundPicks

The average gold stock as represented by the SPDR Gold Shares Index (NYSEARCA:GLD), was up four-fold from 2005 to its peak last month. However, the performance of individual gold stocks has varied over the same period, from an approximate 50% increase in the case of Freeport McMoran Copper & Gold (NYSE:FCX) and Hecla Mining Co. (NYSE:HL), a doubling in the case of Barrick Gold Corp. (NYSE:ABX), a tripling in the case of Kinross Gold Corp. (NYSE:KGC), a quadrupling in the case of Goldcorp Inc. (NYSE:GG), a six-fold increase in the Yamana Gold Inc. (NYSE:AUY), and finally a whopping fifteen-fold rise in the case of Silver Wheaton Corp. (SLW).

The price of gold, like in the case of many other commodities, is influenced by supply and demand, as well as speculation. However, there are many other factors relating to its use as a saving and for investment that probably have a greater influence on its price. In that sense, gold behaves more like a currency than a commodity. In investing, gold has typically been used as a hedge against political, economic or currency crises, and oftentimes as an inflation hedge. While it is difficult to be precise about the future direction of the price of gold, it is perhaps easier to pick companies within the industry that would be relative out-performers and under-performers.

In this article, we identify gold companies that are being accumulated and those being distributed by legendary fund managers such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, based on our extensive database of the buying and selling activities of over 60+ such managers.

We then correlate that with the valuations of those companies, based on standard measures of valuation such as price-to-earnings (P/E) and price-to-book (P/B) ratios, which are applicable to the larger commercial gold companies that are typically owned by these managers. Based on that, we identify under-valued gold companies that are being accumulated by these legendary or guru fund managers, and those that are being sold.

The hedge fund and mutual fund managers included in this select group include only high-profile names who, by virtue of their long-term market-beating returns, have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie.

Overall, gurus are bullish on gold stocks, which in itself is noteworthy given the huge rally we have had since 2005. During the June quarter, guru fund managers together added a net $130 million to their prior $7.50 billion position in the group, selling $1.09 billion and buying $1.22 billion worth of stocks in the group. Furthermore, overall they are slightly under-weight in the group by a factor of 0.86.

The following are the gold mining companies that these guru fund managers are most bullish and bearish about (see table):

Guru Funds Bullish on Value Buy Kinross Gold Corp. (KGC)

KGC is engaged in mining and processing gold, silver, and copper in the U.S., Brazil, Ecuador, Chile and Russia. Guru funds together added $9 million to their $224 million prior quarter position, adding $38 million and cutting $30 million worth of stock. Major holders include First Eagle Investment Management LLC ($138 million) and Third Avenue Management LLC ($66 million). KGC trades at a forward 11 P/E, at the bottom of its historic trading range, but at par with the average 11 P/E for large commercial gold companies; and their price-to-book (P/B) ratio of 0.9 is a steep discount to the 2.3 average for large commercial gold companies.

Guru Funds Bullish on Value Buy Goldcorp Inc. (GG)

GG is a Canadian company engaged in mining and exploration of silver, copper and gold throughout North and South America. Guru funds together added a net $123 million to their $386 million prior quarter position, buying $204 million and selling $81 million worth of stock. Major buyers included RS Investment Management ($165 million) and Hussman Econometrics Advisors Inc. ($38 million). GG trades at a forward 15 P/E, at the bottom of its historic trading range; and its P/B ratio at 1.7 is also a discount to the 2.3 average for the large commercial gold companies.

Guru Funds Bullish on Value Buy Gold Fields Ltd. (NYSE:GFI)

GFI is a South African mining company engaged in the exploration and extraction of gold in South Africa, Ghana, Australia and Peru. Guru funds together added a net $5 million to their $711 million prior quarter position. GFI trades at a discount forward 6 P/E, at the bottom of its historic trading range, and at a discount to the 11 average P/E for large commercial gold companies; and its P/B ratio at 1.6 is a discount to the 2.3 average for the large commercial gold companies. Furthermore, guru funds are over-weight the company, and together they hold 6.2% of the outstanding shares, well above the 2.3% average for the group.

Guru Funds Bullish on Value Buy Harmony Gold Mining (NYSE:HMY)

HMY is a South African gold mining company. Guru funds together added a net $13 million to their $300 million prior quarter position in the group. First Eagle Investment Management LLC ($294 million) is the only major holder. HMY trades at a discount forward 7.6 P/E, at a discount to the 11 average P/E for large commercial gold companies; and its P/B ratio at 1.6 is a discount to the 2.3 average for the large commercial gold companies; and its P/B ratio of 1.4 is a discount to the 2.3% average for the group.

Guru Funds Bullish on Value Buy Barrick Gold Corporation (ABX)

ABX is a Canadian company engaged in production of gold and copper in Peru, Canada, U.S., Australia, Chile, and five other countries. Guru funds together added a net $40 million to their $561 million prior quarter position, selling $164 million and buying $204 million worth of stock. Major holders included First Eagle Investment Management LLC ($151 million), Platinum Investment Management Ltd. ($138 million), Hussman Econometrics Advisors Inc. ($98 million), RS Investment Management ($98 million) and Third Point LLC ($93 million). ABX trades at a discount forward 8 P/E, at the bottom of its historic trading range, and at a discount to the 11 average P/E for large commercial gold companies; and its P/B ratio at 2.5 is slightly above the 2.3 average for the large commercial gold companies.

Guru Funds Bullish on Ivanhoe Mines Ltd. (IVN):

IVN is a Canadian company engaged primarily in the exploration of gold and copper mines in central Asia and the Asian Pacific region. Guru funds together added a minor $6 million to their $324 million prior quarter position, buying $56 million and selling $50 million worth of stock. Major holders of IVN included York Capital Management Global Advisors ($193 million) and Blue Ridge Capital Holdings LLC ($81 million); York was also the major buyer, adding $41 million to its position in the June quarter. IVN has historically incurred losses, so P/E is irrelevant; however, it trades at a P/B ratio of 4.4, higher than the 2.3 average for the group.

Guru Funds Bearish on Freeport McMoran Copper & Gold (FCX)

FCX is engaged in the exploration and development of copper, gold, silver and molybdenum mines in Indonesia, North and South America. Guru funds together cut $39 million from their $685 million prior quarter position, buying $205 million and selling $244 million worth of stock. Major holders of FCX included Fisher Asset Management LLC ($351 million), Capital Growth Management LP ($90 million), and Third Point LLC ($76 million). FCX trades at a forward 6 P/E, at the bottom of its historic range, and at a discount to the forward 11 average P/E for the larger commercial (non-development stage) gold companies in the group; and at a price-to-book (P/B) ratio of 2.3, at par with the 2.3 average for large commercial gold companies.

Guru Funds Bearish on Yamana Gold Inc. (AUY)

AUY is a Canadian company engaged in the exploration and development of gold properties in South America and Mexico. Guru funds together cut $33 million from their $216 million prior quarter position. The major seller was Eton Park Capital Management LP ($31 million), disposition of their entire position in the June quarter; and Donald Smith & Co. (176 million) is the only major holder of AUY among guru funds. AUY trades at a forward 11 P/E, mid-range based on its historic P/E range and at par with the average forward 11 P/E for the large commercial gold companies; and at a P/B ratio of 1.5, it trades at a discount to the average of 2.3 for the large commercial gold companies.

Guru Funds Bearish on Silver Wheaton Corp. (SLW)

SLW is a Canadian buyer of purchase agreements for silver and gold from mining companies operating in Mexico, Sweden and Peru. Guru funds together cut $2 million from their $83 million prior quarter position. Furthermore, they are under-weight the group as together they hold 0.6% of the outstanding shares, well below the 2.3% average for the group. AUY trades at a forward 13 P/E, at a premium to the average forward 11 P/E for the large commercial gold companies; and at a P/B ratio of 4.9, also a premium to the average of 2.3 for the large commercial gold companies.

Guru Funds Bearish on Newmont Mining Corp. (NYSE:NEM)

NEM produces gold in the U.S., Australia, Peru, Indonesia, Canada, New Zealand, Ghana and Mexico. Guru funds together cut a net $184 million from their $928 million prior quarter position, including buying $105 million and selling $289 million worth of stock. Major sellers included SAC Capital Advisors LP ($142 million), Platinum Investment Management Ltd. ($50 million), Royce & Associates LLC ($45 million) and Eton Park Capital Management LP ($45 million). NEM trades at a discount forward 10 P/E, in the bottom third of its historic trading range, and at par with the 11 average P/E for large commercial gold companies; and its P/B ratio at 2.2 is also at par with the 2.3 average for the large commercial gold companies.

Guru Funds Neutral on Value Buy Hecla Mining Co. (HL)

HL is engaged in mining and development of gold, silver, zinc and lead properties in the U.S. and Mexico. Guru funds are slightly under-weight the company holding $35 million or 1.7% of the outstanding shares, versus the 2.3% average of the group, but the same as in the prior quarter. Royce & Associates LLC ($34 million) is the only major holder. HL trades at a discount forward 8 P/E, at the bottom of its historic trading range, and at a discount to the 11 average P/E for large commercial gold companies; and its P/B ratio at 1.4 is a discount to the 2.3 average for the large commercial gold companies.

Guru Funds Neutral on Endeavour Silver Corp. (NYSE:EXK)

EXK is a Canadian company engaged in the acquisition, exploration and development of silver and gold properties in Mexico. Guru funds together hold $21 million or 2.3% of the outstanding shares, the same as the prior quarter. Royce & Associates LLC ($20 million) is the only major holder of the company stock. EXK trades at a discount forward 10 P/E, at par with the 11 average P/E for large commercial gold companies; and its P/B ratio at 4.2 is expensive versus the 2.3 average for the large commercial gold companies.

General Methodology and Background Information: The latest available institutional 13-F filings of over 60+ legendary or guru hedge fund and mutual fund managers were analyzed to determine their capital allocation from among 50+ different industry groupings, and to determine their favorite picks and pans in each group. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 60-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles, many of which can be accessed by clicking on the hyperlinks referencing them in the above Table and in article.

These legendary or guru fund managers number less than one percent of all funds and yet they control almost ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.