... and Precious Picks

11/26/2004 12:00 am EST

Focus:

With gold setting new highs, the precious metals sectors remains a favorite of leading advisors. Here, we offer commentary and several top stock picks from  David Fuller, Carla Pasternak, Joe Sunderman, and Eric Naimer-Roseman.

(For more on the advisors cited below, please click on their photos.)

Fuller, David"My longstanding view is that gold is a buy on setbacks," says David Fuller, a London-based economist and resource expert. In his FullerMoney, he says, "Gold now appears to have completed a lengthy consolidation, and I would not be surprised to see it move to $450 before year-end. Among individual stocks, Newmont Mining (NEM NYSE) is a conservative choice. I'd also note that I almost always use silver as my main gold proxy, because it usually trades like a high-beta version of the yellow metal. Currently, my silver participation is in the Silver Standard Resources (SSRI NASDAQ). Meanwhile, palladium is very much the laggard among precious metals, largely due to a bubble peak in early 2001, which encouraged overproduction and substitution. Today, the supply/demand equation is slowly reversing as low prices attract increased demand, not least from the automobile and jewelery industry. In terms of mining shares, North American Palladium Ltd. (PAL ASE) looks like a recovery candidate."

Pasternak, Carla"While other metals and mining firms are rallying strongly in the face of a falling US dollar, Anglo American (AAUK NASDAQ) remains below analysts' radar screens," notes Carla Pasternak in her High-Yield Investing. Despite a $34 billion market capitalization, the firm is under-followed. Only a handful of analysts track the stock, and institutions own only 1% of the firm's outstanding shares. The result is that the stock hasn't advanced with others in the metals and mining industry and is enormously undervalued. With a P/E of less than 10 times 2005 earnings, the stock is trading at a steep discount to its peer group average of about 35. It's also trading at a discount to the firm's own projected growth rate of +15%. Add in the stock's generous 2.5% dividend yield, and AAUK's valuation looks compelling. Anglo American is not a pure gold play. As a large, diversified mining company, AAUK is less volatile than its peers. The UK-based conglomerate controls mining interests all over the world. It has a 55% stake in gold and silver producer AngloGold Ashanti, 74% of platinum producer Anglo American Platinum, and 45% of diamond producer De Beers Consolidated. It is also one of the world's largest independent coal miners, with interests in base metals and industrial minerals, as well as paper and packaging products. Since placing this gem on our Watch List last month, we have become increasingly convinced that, over time, AAUK will deliver market-beating returns. In our opinion, AAUK spells value."

Sunderman, Joe"Gold futures have continued to move steadily higher along their ten-day and 20-day moving averages. Helping to prop up gold prices has been a weak US dollar, which is hitting levels not seen since 1995," notes Joe Sunderman, analyst with Schaeffer Investment Research . "Amid the gold sector, one of the stock's we especially like is Meridian Gold (MDG NYSE). The security  stands near its annual highs, with the stock trending along its short-term moving averages. The sentiment front looks encouraging. Short interest grew 47% last month and now sits at four times the stock's average daily volume. Finally, the number of  'holds' and 'sells' clearly outweighs the number of 'buys' on the analyst front. Traders should target a move to 22.50 with a stop-loss on a trade below 18.50."

Roseman, Eric"Goldcorp (GG NYSE) is a major Canadian producer, holding a major stake in the Red Lake Mine (located near Placer Dome's lucrative Red Lake Mine)," notes Eric Roseman, editor of Commodity Trend Alert. "Goldcorp, unlike Placer Dome, is a much cheaper stock and without a doubt now ranks as one of the lowest-cost producers in the world today. The stock trades 25% off its 52-week high of $18.38 compared to near-highs for peers such as Placer and Newmont Mining. There's a major discount on Goldcorp's stock, and it's not justified. The company is probably one of the truly lowest-cost producers in the gold mining business with an average cost of just $87 per ounce, no debt, and a strong balance-sheet. Plus, most of Goldcorp's production is not hedged or sold-forward. We think it's time to add to our gold positions, as the bull market in metals takes hold. My target on gold is at $550 an ounce 12 months from now, if not sooner. Buy Goldcorp at prices up to $16.75 a share."

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