It is commonly known that the international monetary system collapsed three times in the twentieth century, in 1914, 1939, and 1971. James Richards, the author of the book “The Death of Money: The Coming Collapse of the International Monetary System”, warns that the next financial collapse is rapidly approaching. He also believes that money and wealth have become more apart, while the true wealth should be permanent and tangible. And gold is believed by many to be the proven long-term store of wealth. Those who share the same thoughts on gold or simply believe that the gold mining industry is undervalued, may increase their portfolios’ exposure to gold by investing in gold mining stocks or simply invest in ETFs. It is worth noting that the hedge funds from our database are bullish on the gold mining industry, as the Market Vectors Gold Miners ETF (NYSEARCA:GDX) is one the five favorite ETFs among hedge funds (read more details here). In this article we will provide a list of five gold mining stocks under $10 that may represent a bargain at the moment, although it is not the actual price of a stock that really matters, but its intrinsic value. Therefore, we will take a look at the hedge funds’ sentiment in order to assess the upside potential of these five stocks.
We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 60 percentage points (118% return vs. S&P 500’s 57.6% gain) over the last 36 months (see the details here).
5. Cliffs Natural Resources Inc (NYSE:CLF)
Investors with Long Positions (as of June 30): 19
Aggregate Value of Investors’ Holdings (as of June 30): $102.21 Million
Two more hedge funds monitored by the Insider Monkey team had Cliffs Natural Resources Inc (NYSE:CLF) in their portfolios at the end of the second quarter, whereas the value of their investments in the mining stock reduced by $7.98 million quarter-over-quarter, partly owning to the 10% drop in the company’s share price during this period. The broader picture is not cheerful either, as the shares of Cliffs Natural have lost 55% year-to-date. It is worth noting that Cliffs Natural Resources is a mining company that produces iron ore and metallurgical coal, which could explain its poor stock performance. The demand in the iron-ore market has dropped significantly, primarily caused by the slumping steel production. Jim Simons’ Renaissance Technologies reported owning 3.85 million shares of Cliffs Natural Resources Inc (NYSE:CLF) in its latest 13F filing.
4. Vale SA (ADR) (NYSE:VALE)
Investors with Long Positions (as of June 30): 22
Aggregate Value of Investors’ Holdings (as of June 30): $303.46 Million
Vale SA (ADR) (NYSE:VALE) lost some of its appeal throughout the hedge fund industry, as the number of top money managers reporting stakes in the stock was down by one during the last quarter. Nevertheless, the value of their stakes climbed $60.90 million over the three-month period. Vale, a Brazilian mining company, intends to cut costs and boost its market share in order to combat the challenges associated with a low price environment in its industry. Credit Suisse Group analysts believe that the weakening Brazilian currency will make Vale one of the lowest cost iron-ore producers next year, which might trigger the company’s turnaround. Howard Marks’ Oaktree Capital Management is one of the bullish investment firms on Vale SA (ADR) (NYSE:VALE), owning 9.56 million shares as of June 30.
3. Kinross Gold Corporation (USA) (NYSE:KGC)
Investors with Long Positions (as of June 30): 23
Aggregate Value of Investors’ Holdings (as of June 30): $227.77 Million
We will now turn our attention to a pure gold play stock, Kinross Gold Corporation (USA) (NYSE:KGC). The number of hedge funds monitored by our team with positions in the stock was up by four at the end of June, but the overall value of their holdings fell by $56.77 million, which should not be attributed to the company’s stock performance. Nevertheless, the stock’s performance has surely disappointed some of the company’s shareholders, as it has lost 38% since the beginning of the year. The Canadian miner has been working on reducing costs to combat the slumping metal prices and recently reduced its capital spending forecast to $650 million from $725 million. David Dreman’s Dreman Value Management added a 493,553 share-position in Kinross Gold Corporation (USA) (NYSE:KGC) during the June quarter.
2. Turquoise Hill Resources Ltd (NYSE:TRQ)
Investors with Long Positions (as of June 30): 25
Aggregate Value of Investors’ Holdings (as of June 30): $697.41 Million
Turquoise Hill Resources Ltd (NYSE:TRQ) became more popular among the hedge funds tracked by Insider Monkey in the second quarter, with four more firms having the stock in their portfolios on June 30. Similarly, the value of their investments grew $29.66 million quarter-over-quarter. Turquoise Hill Resources is a mining company with its primary operation in the Oyu Tolgoi copper-gold-silver mine in Mongolia, in which the company owns a 66% interest. Turquoise Hill and Rio Tinto plc (ADR) (NYSE:RIO) are currently working on the project financing of the underground expansion of the Oyu Tolgoi mine. Kenneth Mario Garschina’s Mason Capital Management owns 23.32 million shares of Turquoise Hill Resources Ltd (NYSE:TRQ) as of June 30.
1. Barrick Gold Corporation (USA) (NYSE:ABX)
Investors with Long Positions (as of June 30): 42
Aggregate Value of Investors’ Holdings (as of June 30): $1.64 Billion
Barrick Gold Corporation (USA) (NYSE:ABX) is by far the most favorite gold mining stock under $10 among the hedge funds within our database. The number of hedge funds invested in the stock at the end of the second quarter was up by one, while the value of these investments increased by $236.25 million during that period. The world’s largest gold producer has been undergoing massive cost reduction efforts lately. At the same time, the company intends to sell six of its US gold mines and projects, in an attempt to reduce its debt by at least $3 billion and strengthen its balance sheet. First Eagle Investment Management, founded by Jean-Marie Eveillard, boosted its stake in Barrick Gold Corporation (USA) (NYSE:ABX) by 39% during the recent quarter to a holding of 40.38 million shares.
Disclosure: None
