As anyone who has ever invested in gold stocks will tell you, mining is a challenging business. Separating quality gold stocks from the scores of garbage mining stocks is an onerous task. Subsequently, most investors have flooded into GLD as a way to participate in the gold bull market.
Another option is to buy companies that should benefit from surging gold prices. One example is US Global Investors (GROW, Financial).
US Global is the manager of mutual funds primarily focused on commodities. The company also has an Eastern European fund that makes up about 20% of assets under management (AUM).
As some commodity shares and Europe have struggled, investors have sold off US Global stock. The shares are down from $10 in May 2011 to $6.75 right now.
For the next year it is not impossible for GROW to generate $40 million in revenues and $6 million in earnings which would equate to 40 cents a share. At a current price of $6.75, the shares are trading at 16.5 times income which is reasonable given the company's leverage to gold stocks. It should be noted that the company sports a 3.5% dividend.
The key to the business is AUM. Currently, market volatility has led to a stampede out of mutual funds. However, if retail investors delineate between plain vanilla mutual funds and precious metal mutual funds, GROW could see inflows and subsequent earnings growth.
At $6.75 a share, the market cap is $105 million. However, net tangible assets are $41 million or nearly $2.70 a share. Cash and securities make up $31 million of this figure.
Another asset on the books is the company headquarters in San Antonio which is probably worth close to a dollar per share. Thus, the downside risk is capped at about $4 a share.
CEO Frank Holmes owns 15% of the fully diluted equity and in June 2011 he scooped up over 15,000 shares at prices as high as $7.78 a share. Holmes has a superb track record of investing in mining stocks and he wouldn’t be buying shares if he did not believe that he could make multiples on his money.
Unfortunately, GROW is too small for most guru fund managers. However, noted value investor Whitney Tilson did purchase 53,000 shares as of June 30, 2011.
Another option is to buy companies that should benefit from surging gold prices. One example is US Global Investors (GROW, Financial).
US Global is the manager of mutual funds primarily focused on commodities. The company also has an Eastern European fund that makes up about 20% of assets under management (AUM).
As some commodity shares and Europe have struggled, investors have sold off US Global stock. The shares are down from $10 in May 2011 to $6.75 right now.
For the next year it is not impossible for GROW to generate $40 million in revenues and $6 million in earnings which would equate to 40 cents a share. At a current price of $6.75, the shares are trading at 16.5 times income which is reasonable given the company's leverage to gold stocks. It should be noted that the company sports a 3.5% dividend.
The key to the business is AUM. Currently, market volatility has led to a stampede out of mutual funds. However, if retail investors delineate between plain vanilla mutual funds and precious metal mutual funds, GROW could see inflows and subsequent earnings growth.
At $6.75 a share, the market cap is $105 million. However, net tangible assets are $41 million or nearly $2.70 a share. Cash and securities make up $31 million of this figure.
Another asset on the books is the company headquarters in San Antonio which is probably worth close to a dollar per share. Thus, the downside risk is capped at about $4 a share.
CEO Frank Holmes owns 15% of the fully diluted equity and in June 2011 he scooped up over 15,000 shares at prices as high as $7.78 a share. Holmes has a superb track record of investing in mining stocks and he wouldn’t be buying shares if he did not believe that he could make multiples on his money.
Unfortunately, GROW is too small for most guru fund managers. However, noted value investor Whitney Tilson did purchase 53,000 shares as of June 30, 2011.
