Barrick Gold Corporation (ABX) has a $47 billion market capitalization on a recent share price of about $48, and has traded within a narrow 52-week range of $42.50-$55.95. The company has reported earnings per share of $4.42 for a price to earnings ratio of 10.79. It pays an annualized dividend of $0.60 for a 1.26% yield. Barrick is the world's largest gold producer and had an up year in 2012 due to a 25% bounce in gold prices. In fact a lot of analysts are championing the company to go ever higher in 2012. However the company is warning that its mines are staring to work lower grade ores which are leading to lower production and increased costs. Even if the price of gold does another run up, the company is going to lose the cost competition against its peers. There are better options out there and I would advise to leave this one alone.
One better option is Freeport-McMoran Copper & Gold, Inc (FCX) which is priced near $44 within its 52-week trading range of $58.75 and has a market capitalization of $4 billion. The trailing twelve months earnings per share are $4.77 which gives it a bargain price to earnings ratio of 9.20, while its price to earnings growth ratio is an extremely desirable 0.456 while getting a steady 2.36% yield off its $1.00 annual dividend. Freeport actually is a company that trades about 80% copper and 20% gold, which has served it well as copper is facing a global production shortage in 2012. Shares dropped in 2011 when production fell due to violent labor unrest in its Indonesia properties. Those problems are settled and Freeport is ramping up production ahead of its rivals to meet growing Asian needs, putting them in prime position to outpace its peers in 2012. I continue to think shares are at a depressed price compared to real value and Freeport is a solid buy.
Goldcorp Incorporated (GG) has a market capitalization of $38 billion on a recent share price around $47. It also trades in a narrow 52-week range of $41.91-$56.31. Earnings per share for the company is reported at $2.18 for an optimistic 21.62 price to earnings ratio. The $0.15 annualized dividend earns a 1.19% dividend. Goldcorp is another big player with operations in the Americas. Earnings growth for the past three years has been a dependable 29.38% and looks set to accelerate over the next 3-5 years. Plus the company does not seem to have the same problem of aging resources as Barrick. I think Goldcorp is a good, conservative gold play based on its dependable earnings growth.
An option for those investors who prefer mid-sized companies is Newmont Mining
Corporation (NEM), which has a share price just above $60, mid-range for the last 52-week zone of $50.05-$72.42. It has a market capitalization of $29 billion. Its reported earnings are $4.40 for a 13.71 price to earnings ratio. The yield is 2.35% off a $1.40 annualized dividend. The stock valuation is definitely lower for Newmont, mostly because the company still is early in programs to ramp up production. Once those plans come to fruition in 2-3 years Newmont definitely has more upside potential than the other gold producers. That said, a lot can happen in the next 2-3 years with gold prices as well as gold supply and demand so I would watch this a few more quarters before I make a big buy.
Our final company on this screen is Silver Wheaton Corp (SLW)which is also the baby of the bunch with only a $12 billion market capitalization off a recent share value near $36 on a 52-week range of $25.84-$7.60. The dividend of $0.36 offers a 1.02% yield, lowest of this group. The price to earnings ratio is a hefty 24.24, highest on this screen, based on its $1.49 earnings per share. The company by far has the lowest cost structure for any precious materials company. It is a cash flow machine and the dividends should double if not triple in 2012 year over year. As long as silver prices are elevated, I consider Silver Wheaton to be a strong buy.
Of these five I consider them all good buy opportunities, but I place the non-gold stocks of Freeport-McMoran and Silver Wheaton as clearly superior. Both companies are establishing excellent dynamics in production increases and cost advantages which give them outstanding market positioning that should push stock value upward through 2012 and beyond. As long as ore prices remain elevated, I expect these two stars to race a long way.
About the author:I'm mostly interested in income investing using dividends, preferred stocks and other debt instruments, and pair trading.
I fundamentally analyze every business from the top down.
In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.