The final installment of the 2010 Barron's Roundtable appears this week. I am particularly interested in Fred Hickey's views, because he's been riding the gold bull market for the past decade. And because I've made gold such a large part of my portfolio.
Like Hickey, my single largest precious metals position is the SPDR Gold ETF (GLD), but we're both into the gold mining stocks. He says:
They have lagged the price of gold in the past two years. The price of gold went up 30%, and the stocks fell about 7%, on average. In most gold bull markets, the stocks will outperform by at least 2-to-1.
He then discusses junior miners (an area I'm not in). Then talks about one of the majors we do share, Newmont Mining (NEM):
It has lagged in recent years because its production has been in decline, and that's the case with the whole gold industry. It is difficult to find gold and produce it. There are environmental issues. Declining production is an underlying positive for gold. In 2010, however, Newmont will see a change. The company is bringing on the largest gold mine in Australia. Newmont produces about 5.2 million ounces a year, and this mine will produce a million ounces a year, for 24 years. Also, Newmont will have the benefit of higher gold prices. It also has been cutting costs. The stock sells for a little less than 50. The company is expected to earn more than $3 a share this year, but that is conservative. In the third quarter of 2009, they made 79 cents, versus estimates of 55 cents. The new CEO, Richard O'Brien, is trying to keep expectations low. Newmont is going to blow away expectations in the current quarter, and as long as gold is $1,100 or higher, you'll see some big numbers. Newmont could earn $4 a share in 2010. Put a P/E of 15 to 20 on it, and you have a significantly higher stock price.
Marc Faber chimed in that NEM was a "very cheap stock."
Along with NEM, my other gold mining plays are Goldcorp (GG), Agnico-Eagle Mines (AEM) and the Market Vectors Gold Mining ETF (GDX). They're all down a bit since I bought them in January. But I still like them. GLD is up since I bought it last summer.
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Posted by: Purchase Krugerrand | February 04, 2010 at 12:50 AM
PK: Thanks for your comments.
Posted by: John | February 04, 2010 at 09:58 PM