Is there anything out there that is still inexpensive? Indeed, gold is cheap. And so are gold mining shares, asserts Mark Skousen, editor of Home Run Trader.
There are seven key reasons why gold, “the barbarous relic,” has long been sought after as a store of value:
1) Unlike wheat, corn or rice, it is durable.
2) Unlike artwork, it is divisible.
3) Unlike lead or copper, it is convenient.
4) Unlike real estate, it is identical.
5) Unlike paper, it possesses intrinsic value.
6) Unlike aluminum or copper, the supply is greatly limited.
7) Unlike, say, molybdenum or rhodium, it has a long history of acceptance as money.
Last but not least, gold is far more stable and less volatile compared to Bitcoin and other cryptocurrencies, which have been suffering from one crisis or another (the FTX scandal being the latest).
However, gold is unique in other ways that make it a tricky investment. Unlike cash or bonds, gold doesn’t accrue interest. Unlike a business, it does not generate earnings. Unlike a stock, it does not pay dividends. And unlike real estate, it does not generate rental income. That makes gold difficult to assess even under the best of circumstances.
The decline in gold — despite the highest inflation in 40 years — has also pressured gold shares. But here, we can use traditional value metrics. And gold stocks are now inexpensive relative both to their traditional valuations and to the price of gold itself.
One of the best ways to play this is with Newmont Mining Corp. (NEM). With a market cap of $37 billion, Newmont has mining operations in the United States, Australia, Peru, Indonesia, Canada, New Zealand, Ghana and Mexico. Approximately 70% of its mines are in North America and Australia, giving the company less political risk than most gold miners.
In 2019, it acquired Goldcorp, gaining new mines, new people and more assets. It now has more than 100 million ounces of proven and probable gold reserves. It also produces silver, copper and zinc, and runs a merchant banking operation.
The stock is inexpensive at just 17 times prospective earnings for the next 12 months. I expect earnings per share to rise from $2.24 this year to more than $3 in 2023. And that’s if there is no increase in the price of gold. With all-in costs of $1,150 per ounce, profits will grow dramatically with an uptick in the price of gold.
And you’ll earn a 4.73% dividend while you wait. This is an undervalued gold play with strong management, excellent prospects and plenty of upside potential.