Record oil and gas prices, along with a faltering U.S. economy and weakening dollar, have helped to move the price of gold and other precious metals higher over the past year. The price of gold already surpassed the $1,000 mark in March, and although it has since pulled back a bit, the long-term uptrend for gold remains strong. At the time of writing Tuesday morning, Gold was trading up about 1% on the day already, at about $984, as investors continue to jump into the traditional safe haven investment.
Although the market's situation does not seem as severe as perhaps it once was during the midst of the Bear Stearns collapse, there is still talk to financial collapse on Wall Street. Massive mortgage players Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) are currently in the news due to a potential bailout by the Treasury and Fed, including being purchased by the former, and the latter opening up a new lending window. Should this happen, increasing the money supply could have a drastic effect on rising inflation. Inflation worries are just the thing needed to push gold over the top of this huge psychological barrier. (Find out whether gold can live up to the hype, in our related article Does It Still Pay To Invest In Gold?)
Investing directly in precious metals may not be possible, or even desired, but there are other ways to take advantage of this bullish run up. As the prices of the underlying commodities increase, so do the share prices of well run companies that deal in them. Here are five precious metals companies that have done very well over the past month. Let's take a closer look to find one with some more room to the upside.
| Company |
One Month Gain* |
Market Capitalization
|
|
Kinross Gold
(NYSE:KGC)
|
35.4% |
$15 billion
|
|
Goldcorp
(NYSE:GG)
|
32.8%
|
$36 billion
|
|
Barrick Gold
(NYSE:ABX)
|
30.7%
|
$44 billion
|
Agnico-Eagle Mines
(NYSE:AEM) |
24.9%
|
$11 billion
|
|
Ivanhoe Mines
(NYSE:IVN)
|
16.2%
|
$4 billion
|
| Data as of market close July 14, 2008 |
Catching The Gold Bug
Barrick Gold (NYSE:ABX) is, by far, the most attractive of these stocks when looking at them fundamentally. With quarterly revenue growth of 80% year-over-year, compared to Kinross' 34% and Goldcorp's 32%, Barrick is growing fast. Considering it is the world's largest gold producer, at $44 billion in capitalization, fast growth is definitely impressive. It also has one of the highest net incomes, earning almost $2 billion last fiscal year with a trailing three-month earnings per share of $2.03. To put this in perspective, Kinross earned just $336 million (55 cents per share), Goldcorp earned $487 million (80 cents per share), and the average for the industry is a loss of $5 million. What's even better, is that Barrick's growth and impressive earnings are coming at a discount to investors. Barrick has a price-to-earnings ratio of 25, almost half of the industry's 42, which means investors can get involved today, at a reasonable price. (To learn more on analyzing a company's fundamentals, check out our Advanced Financial Statement Analysis Tutorial.)
Financials aside, what I absolutely love to see in a company is creative thinking, and this is what Barrick is doing. While most companies are suffering the higher costs of energy these days, few are doing something proactive about it - Barrick Gold is one of the few that is. In a recent bid to contain energy costs in its mines for the next decade or so, Barrick Gold offered C$354 million for Alberta oil and natural gas producer, Cadence Energy of Calgary, Alberta. This is an all cash bid (nice to see in troubled credit markets) of $6 per share, and although an agreement has not been reached, if it goes through, it will allow Barrick to hedge about one-quarter of its oil consumption, and a very large part of its natural gas consumption at an acquisition cost of approximately $20 per barrel of oil equivalent.
Add Your Two Cents
What do you think will happen with gold going forward? Will further collapse in the U.S. financial markets be the trigger to send prices higher as investors flee from economic instability and rising inflation? Will Barrick's bid to hedge energy costs work, sending its share price even higher? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.