A Precious Metals Stock That's Also a Value Stock

Harmony Gold fits the value profile

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John Navin
Jul 15, 2021

Summary

  • The stock has a low price-earnings ratio.
  • It is trading at just about book value.
  • Earnings are good, it pays a dividend and it has low debt.
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Harmony Gold Mining Co. Ltd. (

HMY, Financial) is the New York Stock Exchange mining company that looks like a value stock these days. With price-earnings ratios of significantly less than the market as a whole and now trading at just about book value, it fits the mold. The South African miner pays a reasonable dividend and is earning money with not much debt. If you’re a long-term investor, the monthly price chart is showing a steady uptrend despite the shorter-term fluctuations.

Let’s start with the price-earnings ratio. This metric is imperfect and insufficient by itself to make investment decisions, but it’s arguably the best starting point for the value journey. The multiple for Harmony is a distinctly low 10. The price-earnings ratio for the S&P 500 sits at 46, one of the highest levels it has seen in its history. Most of that is because of the effect of big-name tech companies that make up the index with their exceptionally high multiples. Let’s compare Harmony Gold to the biggest company in the same sector: Newmont Corp.'s (

NEM, Financial) price-earnings ratio is 21.5. Harmony’s forward price-earnings ratio is even lower at 8.6, reflecting the poor opinion of (usually wrong) analysts about future earnings.

Book value is another metric that by itself would be insufficient, but when combined with other key factors typically points the smart money in the right direction. Basically – although it can be derived precisely in different ways – “book” is what you come up with when you simply subtract all of the liabilities from the total value of assets. Then, that’s divided by the number of shares outstanding. Harmony’s is way down there at 1.10. Book for Newmont sits at 2.20. The other major gold mining corporations also show greater book values. Barrick Gold Corp. (

GOLD, Financial), which Warren Buffett (Trades, Portfolio) and crew bought and then sold last year, shows book at 1.59. Franco-Nevada Corp. (FNV, Financial) has a book value of 5.11. Wheaton Precious Metals Corp. (WPM, Financial) comes in at 3.45. Simply put, relative to the other major large equities in the same sector, it’s clear that Harmony Gold is the cheapest by this measure.

The mining company is paying a 2% dividend yield. This compares favorably to the meager 1.35% now offered to buyers of U.S. Treasury 10-year notes. Obviously there’s more risk involved in the ownership of an equity than with a government bond. It’s probably worth noting right here that Harmony’s earnings per share are up 60% this year. The five-year earnings per share figure is a positive 30%. The company’s long-term debt is substantially less than shareholder equity, the kind of thing that would have put a smile on the face of "The Intelligent Investor" author Benjamin Graham back when he researched stocks.

Equities like this can be buyout candidates for larger companies looking to expand. Based on the type of value profile being exhibited by Harmony, it’s likely showing up on the screens of competitors, not to mention those institutional investment companies that track the industry seeking potential candidates.

The biggest potential negative for a stock like Harmony Gold: a sudden, dramatic rise in interest rates that dampens inflation expectations. This would liikely affect the price of the metal itself and that of all precious metals stocks. On the other hand, if inflation picked at a greater-than-expected rate and got ahead of the ability of the Federal Reserve to quickly adjust, that might benefit gold mining stocks like Harmony.

From a long-term price chart analysis standpoint (below), Harmony Gold has been in an uptrend since the late 2015 low of 50 cents per share. That’s right, 50 cents. At the time of this writing, it’s up to $4.11 per share after peaking at $7.50 in mid-2020. You can see on the monthly chart that the stock price is now well above the Ichimoku cloud (a mix of moving averages indicating basic trending) after remaining below it from 2012 to 2019 – a period of seven years. Above rather than below is a desirable quality for investors who are long, generally.

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Stats courtesy of FinViz.com.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Not investment advice. Do your own thorough research and analysis. Be sure to check with a registered investment advisor before making any decisions.
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