Gold stocks are still solid bets given the expected rise in gold prices. This is in part driven by the Fed’s announcement to keep rates near zero through mid-2015; check out the gold stocks you should own to play QE3. Gold has been in steady ascension since 2001 and not only is the Fed helping drive gold prices higher, but continued geopolitical and international sovereign debt concerns are also increasing gold’s appeal. Gold was up 10% in price in 2011, up to $1,565 per ounce, and the price is expected to end 2012 up 21% from 2011 at $1,900.
Barrick Gold Corporation (NYSE:ABX), the world’s largest gold miner, took a plunge—almost 10%—after posting EPS for 3Q that came in at $0.62, down from $1.37 a year ago. The gold miner cited lower sales volumes and lower realized gold prices as the reason for the EPS decline. Part of what drove Barrick’s stock down was their revised outlook for full year 2012. The gold producer narrowed production guidance from a range of 7.3-7.8MM ounces of gold to 7.3-7.5MM ounces.
Barrick’s key competitor is Goldcorp Inc. (NYSE:GG). Goldcorp’s most recent earnings showed slowing production from key mines and planned CapEx revisions. Goldcorp reported 3Q EPS of $0.54, ten cents above consensus of $0.44. The gold miner did maintain production guidance in the range of 2.35MM to 2.45MM ounces, unlike Barrick’s downward revision.They also plan to continue exploration and development of fresh water wells through 2013.
Another notable competitor is Newmont Mining Corp (NYSE:NEM). Newmont recently reported 3Q EPS of $0.85, compared to consensus of $0.89. This was in part due to the fact that gold consolidated cash costs came in at $693 an ounce, compared to estimates of $657 per ounce. Newmont guided gold production down to the low end of its range of 5.0MM to 5.1MM ounces, and even raised costs to $650-$675 per ounce, versus previous estimates of $625-$675 per ounce.
Two other notable, albeit smaller, gold miners are Kinross Gold Corporation (NYSE:KGC) and NovaGold Resources Inc. (NYSEAMEX:NG). Kinross also recently posted its 3Q results, beating estimates of $0.19 by posting $0.22. The better than expected numbers for Kinross came on the back of better production and lower costs, where total cash costs were only $677 per ounce, compared to estimates of $697. 2012 EPS estimates were recently increased on higher than expected production forecasts, and the miner is now expected to see 2013 EPS growth of 50%.
NovaGold posted revenues that were relatively flat for 3Q, compared to the first nine months of 2011, but income was up. NovaGold recently announced the transfer of key assets, including Alaska Gold Company LLC, for $6.3 million to Bering Straits. NovaGold is the smallest of the five gold mining stocks listed, and despite two quarters of negative EPS, the gold miner is expected to end up growing EPS 90% this year.
Notable fund interest was flocking to Goldcorp in 2Q. First Eagle Investment Management and Vinik Asset Management were the top two firms at the end of June, with First Eagle owning almost 10 million shares, which was also made a 180% increase from 1Q. Billionaire David Einhorn specifically likes Goldcorp and Newmont.
There were three funds that regretted upping their 1Q Barrick stakes during 2Q. They include Jim Simons, Platinum Asset Management and Vinik Asset Management. All of these firms owned at least 2 million shares and may have lost at least $7.5 million each on Barrick’s one-day decline when it announced its 3Q results; check out all the funds owning Barrick.
Of the gold miners with calculable P/E ratios, Barrick is by far the cheapest. Barrick currently trades at a trailing P/E of 9x, while Goldcorp is at 21x and Newmont is at 222x. Given the recent pullback in Barrick, we believe the stock is now a possible buy. Barrick and Goldcorp are the two figurative giants in the industry, and Barrick also trades at a steep discount on a P/S basis at 2.6x, compared to Goldcorp’s 6.7x. We see Barrick’s market leading position and top in industry return on equity of 28% as being strong reasons to supporting a bullish bet. Not to mention the anticipated strong demand for gold in the near future and the strong gold price performance that will come with it. Barrick also pays the highest dividend yield of our five gold stocks listed with a 2.2% dividend yield.
