The Biggest Stock Market Winner Going Forward

By Thursday, November 8, 2012

stock marketMore hard reality is coming to the stock market and those commodities that will benefit from the headwinds coming our way. The spot price of gold has been going up on a weaker U.S. dollar, which has been going down because of worries regarding the global economy. Gold looks good here, and $2,000 an ounce by early 2013 is a real possibility.

A lot of gold stocks recently hit a wall, not just because of stalling of the spot price of gold, but because of their valuations. The perfect example of this is industry benchmark Yamana Gold Inc. (NYSE/AUY), which has followed spot gold in its turnaround since August. Since then, this well-managed gold producer is up five full points and currently boasts a price-to-earnings (P/E) ratio of approximately 40. Wall Street analysts recently increased their earnings expectations for the company in 2013, but what this stock needs now is a rising spot price in order to break out. Yamana Gold’s stock chart is featured below:

Yamana Gold Inc. Chart

 Chart courtesy of www.StockCharts.com

This is the big thing with gold stocks; no matter how good the story is or how much an earnings report beats the Street, gold stocks don’t really go up unless the spot price of gold is doing so. It’s a reality of precious metal investing; it’s a reality of most commodity-related securities.

Balanced equity portfolios should already have some exposure to gold, either through individual gold stocks, a fund, or an exchange-traded fund (ETF). No matter what happens to the U.S. economy going forward, the fundamentals for gold support a rising spot price environment. Sovereign debt, a weaker U.S. dollar, increasing money supply, massive deficits—you name the risk, gold is the natural beneficiary.

Investment risk is always high when dealing with commodity-related securities, and even with today’s strong backdrop for gold, individual gold stocks follow their own stories. Newmont Mining Corporation (NYSE/NEM), for example, is one of the most well-known, large-cap gold stocks. This stock has struggled lately due to rising production costs and a high valuation.

So, like in any industry, if you are speculating in gold stocks, you have to do your research. (See “Mining Stocks Getting Exactly What They Need.”) This is why ETFs or gold trusts make a lot of sense for the passive investor who wants exposure to gold, but not individual company risk. The next major hurdle for spot gold prices will be $1,750, and I think they’ll get there very soon. Fiscal reality is now the biggest challenge facing the global economy.


About the Author | Browse Mitchell Clark's Articles

Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »

Sep. 5, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.62%
10-year U.S. Treasury Yield 2.19%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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From: Michael Lombardi, MBA
Subject: Gold: The Stock Contrarian Investors’ Best Play of the Decade

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