Five Gold Mining Stocks to Own Now

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.

#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.

#2 Newmont Mining Corp (NYSE:NEM)

Investors with Long Positions (as of September 30): 41

Aggregate Value of Investors’ Holdings (as of September 30): $2.84 Billion

While the total number of hedge funds (among those that we track) holding shares of the $9.6 billion gold producer fell by five during the third trimester, the value of these aggregate investments rose by 18%. The surge came despite a more than 31% drop in the company’s share price. So far this year, the stock is down by about 6.2%. FBR Capital recently has reiterated its ‘Market Perform’ rating for the company and hiked its price target to $22 from $19. The new price target provides an upside of more than 20% at the current trading levels. Newmont Mining Corp (NYSE:NEM) has managed to reduce its AISC by 18% this year and it is expected to remain below $1,000 per ounce for the next five years. William B. Gray‘s Orbis Investment Management boosted its stake in Newmont Mining Corp (NYSE:NEM) by 35% in the July-September period to 7.78 million shares.

#1 Barrick Gold Corporation (USA) (NYSE:ABX)

Investors with Long Positions (as of September 30): 40

Aggregate Value of Investors’ Holdings (as of September 30): $937.59 Million

So far this year the stock price of the Canada-based Barrick Gold has fallen by nearly 35%. However, the miner is deleveraging itself in the face of a tough environment and recently has revealed plans to buy back up to $1.15 billion of its own debt. Barrick Gold Corporation (USA) (NYSE:ABX)’s debt at the start of this year exceeded $13 billion and the management is trying to reduce this figure to $3 billion by the end of 2015. Collectively the funds we track amassed about 12.7% of the company’s outstanding stock at the end of September. Among these investors, First Eagle Investment Management holds about 27.85 million shares of Barrick Gold Corporation (USA) (NYSE:ABX).

Disclosure: none