... and in Harmony with Harmony
12/31/2004 12:00 am EST
Ivan Martchev, editor of Wall Street Winners, specializes in growth investing and portfolio risk management. He is also a noted authority on natural resources - the area from which he draws his Top Pick for 2005 - Harmony Gold Mining.
"Harmony Gold Mining (HMY NYSE) is a major South African gold producer in the midst of a hostile takeover bid for another South African gold miner Gold Fields, which is actually a larger company. Meanwhile, Harmony has declined about 50% from its high hit earlier this year, while gold bullion is up marginally in 2004. How come we have such a huge divergence? Harmony pays its costs in South African rand and sells its gold in US dollars. The rand has been rallying massively against the dollar at a faster rate than gold prices have been rising.
"I believe that South African mining stocks are the best value in the gold universe right now. The rand is unlikely to continue to rally forever against the dollar and recent activity on the interest rate front in South Africa suggests that we are close to a peak for the rand. Also, Harmony and many other South African miners have diversified their operations outside of South Africa to manage their rand exposure. Buying Harmony here is a case of buying when there is ‘blood on the streets.’ In my view, the stock can decline to $7.50 or so from here, where there is multi-year support. Upside in my view is easily doable to about $13-$15 in 2005."