Newmont—the “Best of Breed” of All Gold Stocks

By Friday, November 30, 2012

Gold ProducersThere’s been plenty of talk around here regarding gold and whether the precious metal is heading for $2,000. In my view, the current global risk will support and drive gold higher. (Read “The Stock Market Event You Need to Guard Against Right Now.”)

For any gold investor, the question is whether to buy the physical bullion or gold mining stocks. If you like the idea of holding the actual gold, you can always fly to Dubai and buy the metal from the vending machines, like Michael outlined yesterday in his article. But for the average investor, I favor gold stocks over the higher risk of other commodity options.

An investment strategy would be to buy a mixture of exploration-stage gold mining stocks along with small to large gold producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large gold producers.

For investors interested in exchange-traded funds (ETFs), the SPDR Gold Trust ETF (GLD) is worth a look and is currently trading in a sideways channel, above the 50- and 200-day moving averages (MAs).

SPDR Gold Trust Chart

 Chart courtesy of www.StockCharts.com

At the top of my list of gold stocks is Newmont Mining Corporation (NYSE/NEM); in my view, Newmont is one of the best stocks in gold, because this stock will generate value for your portfolio for years to come. I’ll go even so far as to say that this stock is the only one you will need to own for the next decade, with its good price appreciation potential and dividend.

Missing its earnings-per-share (EPS) estimates in three of the last four quarters, Newmont is down to just above its 52-week low of $42.95 and, with the selling, I feel the stock has good above-average upside potential.

Newmont Mining Corporation Chart

 Chart courtesy of www.StockCharts.com

Without a doubt, for those investors looking to hedge their portfolios with gold exposure, Newmont deserves to be at the top of the list. This company stands out among other players for two reasons: 1) size; and 2) low production costs.

Over the years, Newmont has grown rapidly through mergers and acquisitions, as well as through the development of its existing reserves. This strategy resulted in the company’s diversified risks; namely, unlike junior producers, Newmont doesn’t depend on one or two of its mines for its future, and it’s certainly not exposed to politically unstable regions. The risk is spread out, as the company continues to maintain an aggressive worldwide exploration program and actively participates in and takes advantage of the ongoing industry consolidations.

In terms of costs, Newmont enjoys an overall favorable cost structure. Its South American operations are a key reason why costs are kept down. This is particularly true with the Yanacocha property in Peru, where cash costs are in the lowest per-ounce price range.

The company’s diversified portfolio of low-cost mines allows it to remain profitable, even during prolonged weakness in the gold bullion market. In the past 10 years, Newmont has posted net losses three times, yet each year it has generated positive operating cash flows.

This strategy is consistent with those of most producers: invest every dollar earned, and then some, back into the operations. However, with Newmont, it seems to come with ease, adding further to its attractiveness, as it can grow even during periods of depressed gold prices and at a lower investment rate.

This is the stock that saw its market price go up double percentage-points over the past three years, and its sales double every three years. The company is growing aggressively—both internally and by acquisitions—and has sufficient cash in the bank to finance that growth.

Newmont is an ideal candidate for investors looking for a company with excellent fundamentals, a proven track record, and an experienced and knowledgeable management team. Note that this is not a specific recommendation to buy at this time; just a suggesting to keep an eye on this stock.

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About the Author, Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »