How to Buy Gold Mining Stocks

NEW YORK (TheStreet) -- Record high gold prices have investors looking for new ways to get in on the trade and invest in gold.

Mining stocks are volatile but can offer a 3-to-1 leverage to gold's spot price. SPDR Gold Shares(GLD Quote), which tracks gold prices, are up 18.43% year to date while Market Vectors Gold Miners ETF(GDX Quote) has popped 25.06%.

Adam Graf, director of emerging miners for Dahlman Rose & Co., has ideas if you want to buy mining stocks without an ETF. Gold prices are "a currency reaction to inflation and subject to big overall trends in investment demand for gold as an alternative asset class." Graf uses value and leverage models to find the best stocks. Here's how he laid out the strategy:

What are your favorite large cap miners?

Graf: Of the large names I like, the large-cap, liquid, major gold producers, I like Newmont(NEM Quote), Kinross(KGC Quote) and Yamana(AUY Quote). In my view, they are all trading at approximately .8 times NAV. In other words, they are trading at 80% of their full intrinsic value. That's how they fall on a value metric.

On a leverage metric, Newmont gives you ... almost the most leverage in the space, Barrick's has lightly higher leverage. And the way I measure leverage is the change in the theoretical forward-looking change in the stock prices over the current stock price. ... So Newmont and Barrick have the most leverage to gold. But I like Newmont better because it gives you almost as much value as Barrick ... but it's much cheaper vs. Barrick.

I like Yamana because it's a smaller company with good growth. While it gives you slightly less leverage than Agnico-Eagle(AEM Quote) and Goldcorp(GG Quote), and a similar growth profile, again it trades much cheaper. My call on Yamana is not so much of a leverage call, but a value call.

The third company I like is Kinross. The leverage there is not quite as high as Newmont and Barrick, but is still very attractive ... and it also gives value.

And what about some speculative names like NovaGold?(NG Quote)