May 26, 2012
Topics: Gold Stocks
The sentiment in the gold market has been bearish and not without a reason; the price performance of many shares has been dreadful despite high gold prices. But many gold mining companies, especially the senior producers that are listed in the market vectors ETF (GDX), have continued to publish bullish earnings.
There seems to be a consensus among industry veterans that stock valuations are suppressed and do not represent anything resembling fundamental value. In a recent interview on King World News, Rick Rule said that he had started looking for bargains. He stated that there is a good chance that we may even see lower valuations over the next 12 â 18 months as much of the traditional financing from hedge funds and institutional investors is drying up, especially among junior exploration companies. This will open up opportunities to accredited investors to take advantage of private placement deals over the coming months.
But even senior gold companies such as Newmont Mining, Gold Corp, and Barrick Gold Corp are sold at a discount. At present levels they are a very attractive alternative to holding physical gold. They have physical gold in reserves and offer plenty of upside potential, in addition to paying a dividend. For example, Newmont Mining pays a 3.09% dividends; this is about twice the amount you get on bank deposits while having an asset that will hedge against inflation. The table below shows seven intermediate and large gold mining companies that offer substantial value.
Gold mining stocks have different characteristics from general equities and traditional measures such as P/E ratios donât do well in assessing the true value of the company. Other factors such as company cost, production rates, reserves in the ground, and development trends are more important. The table below is based on a model developed by Bud Conrad at Casey Research and gives a better indication of a companyâs true value. A low score represents undervaluation and a high score means over valuation.
Many senior companies in the gold mining industry offer considerable value and many have started to pay out larger dividends. Companies such as Barrick Gold Corporation (ABX), Goldcorp (GG), Newmont Mining (NEM), and Yamana Gold (AUY) and New Gold (NGD) are selling at bargain price levels and investors with a longer investment horizon should consider slowly accumulating some of these equities.
To learn about trends and spot the next investment opportunity read the Casey Report from Casey Research. It's a monthly investment news letter that breakdown economic trends in a way that is easy to understand. They make recommendations based on economic reality and their track record is several times better than the market or any mutual fund for that matter.
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