From an investing point of view, it is important to recognize the future potential of companies that are beleaguered by harsh market conditions that have a strong chance of being resolved in due time. The case under discussion is that of gold, which has slid by more than 12% over the last 12 months and is near its 6-year lows. This presents an exciting opportunity to gain exposure to the undervalued gold mining companies that could potentially post strong gains as the price of their precious commodity improves. Keeping this in mind, we have compiled a list of mining stocks that professional money managers have been most interested in lately.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 102% over the last 3 years and outperformed the S&P 500 Index by 53 percentage points (see the details here).
#5 Royal Gold, Inc (USA) (NASDAQ:RGLD)
Investors with Long Positions (as of September 30): 25
Aggregate Value of Investors’ Holdings (as of September 30): $354.08 Million
Royal Gold’s stock price might have fallen by almost 44% so far this year, but this did little to stop the hedge fund enthusiasm surrounding the company to increase as the total number funds holding Royal Gold, Inc (USA) (NASDAQ:RGLD) in their portfolios went up by seven during the third trimester, while the subsequent value of the aggregate holdings rose by 27%. Murray Stahl‘s Horizon Asset Management owns about 716,000 shares of Royal Gold, Inc (USA) (NASDAQ:RGLD). The company is more in the financing business rather than mining itself, although the recipients of this financing are the gold miners. It does, however, receive royalty payments throughout the extraction phase. This, combined with the fact that Royal Gold has just 20 employees, makes the business much less exposed to commodity prices than other companies in the industry.
#4 Agnico Eagle Mines Ltd (USA) (NYSE:AEM)
Investors with Long Positions (as of September 30): 25
Aggregate Value of Investors’ Holdings (as of September 30): $636.74 Million
The total number of funds having exposure to the Canada-based gold producer increased by five during the third quarter, however, the value of these aggregate holdings took a downswing of 3.3% mostly on account of an over 10% fall in the stock price. So far this year, Agnico Eagle Mines Ltd (USA) (NYSE:AEM)’s shares are up by more than 6%. Macquarie upgraded the company to ‘Outperform’ from ‘Neutral’ last month. The company managed to beat both the top and bottom line estimates in its financial results for the third quarter. Israel Englander‘s Millennium Management boosted its stake in Agnico Eagle Mines Ltd (USA) (NYSE:AEM) to 1.63 million shares during the September quarter.
Follow Rcs Capital Corp (NYSE:RCAP)
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#3 Goldcorp Inc. (USA) (NYSE:GG)
Investors with Long Positions (as of September 30): 29
Aggregate Value of Investors’ Holdings (as of September 30): $871.28 Million
During the third quarter the number of hedge funds long Goldcorp Inc. (USA) (NYSE:GG) increased by five, while the aggregate value of their holdings appreciated by about $23 million. The bullishness transpired despite a 24% drop in the gold producer’s stock price during this period. On a year-to-date basis shares are down by over 40%, even though the company managed to cut its all-in sustaining costs (AISC) by 4% since the first quarter.Moreover, Goldcorp’s production in the third quarter rose by 40% from the same period a year ago. First Eagle Investment Management also tops our list of Goldcorp Inc. (USA) (NYSE:GG)’s stockholders as it owns about 42.47 million shares.
