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Nicholas Kitonyi
Nicholas Kitonyi
Articles (393)  | Author's Website |

These Gold Stocks Could Be Undervalued

Their prices have declined significantly over the last few months

November 29, 2020 | About:

The price of gold has pulled back over the last few months. Investors also appear to be becoming more optimistic about stocks amid positive developments in a couple of potential Covid-19 vaccines.

However, with still a few unknowns about how long the Pfizer Inc. (PFE) and Moderna Inc. (MRNA) vaccines can remain effective on various age groups, it means that some investors will continue to observe caution in the market.

In my view, diversification will continue to be key, which is where gold comes into play. Investing in gold mining stocks provides investors with one way to benefit from capital gains and potential dividends in thke case of a rise in gold prices. Here are two names in gold mining that I think are undervalued at the moment.

Kinross Gold

Shares of Canadian gold company Kinross Gold Corp (NYSE:KGC) are down nearly 30% since peaking in August. The company's stock gained 110% between January and Sepember, right after the price of gold hit a new all-time high. The company's stock is now up 50% this year.

In the company's earnings results announced earlier in November, Kinross reported adjusted earnings per share of at $0.25, almost three times the figure reported for the same quarter of 2019. It is expected to post an average earnings growth of 34.5% over the next five years according to Wall Street, which points to a potential undervaluation of the stock.

Kinross currently trades at a price-earnings ratio of 8.85. The company has a forward dividend rate of $0.12, which is a huge improvement from the trailing rate of $0.03. Its payout ratio of just 3.53% also suggests that there is a lot of room for dividend improvement in the coming years.

AngloGold Ashanti

AngloGold Ashanti Ltd (NYSE:AU) is another gold mining company whose stock price has declined over the last three months. The company's stock price rallied 170% between March 20 and July 27 before experiencing a 43% decline. It is now down about 5.5% this year, which again suggests that there is potential for recovery going into the tail-end of the year.

The company's earnings per share are expected to experience a growth of about 27.75% per year over the next five years, according to analyst estimates. Its current trailing 12-month price-earnings ratio is 14.24. Its forward price-earnings ratio of just 4.79 suggests a potential case of significant undervaluation.

However, AngloGold Ashanti investors will need to look out for a recent rating by Moody's which points to a negative outlook. The credit rating firm lowered AngloGold Ashanti's credit rating on Nov. 26, indicating a higher chance of default on its debt.

Conclusion

In summary, shares of Kinross and AngloGold Ashanti appear to be substantially undervalued based, in my opinion. Both stocks have experienced significant declines in their prices over the last few months amid a declining gold price.

Disclosure: No position in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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