By Jon C. Ogg,
24/7 Wall St.
Whether we are in a good bubble remains a question, but shares of many miners and producers are trading above analysts' price targets, according Thomson Reuters.
To find out which stocks can earn investors money ahead, we looked at more than 40 gold stocks, including Barrick Gold (ABX), Gammon Gold (GRS), Goldcorp (GG), IAMGOLD (IAG), Jaguar Mining (JAG), Royal Gold (RGLD) and Yamana Gold (AUY). Investors who prefer not to take on individual company risk can also look at exchange-traded funds, such as Market Vectors Gold Miners ETF (GDX) and then the Market Vectors Junior Gold Miners ETF (GDXJ). We looked at companies with markets caps of at least $500 million that are actively traded and have five or more analysts covering them.
When it comes to gold stocks, there are many factors to consider when picking companies. Most are foreign or profiting from foreign operations. There are potential labor and safety issues, and political unrest can be a problem as companies generally have to work in many hostile areas. There is also an ongoing currency risk for international operations, though gold is at least generally valued in dollars.
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The greatest risk is also the easiest to guess and the hardest to pick: the price of gold today versus a year and two years out. If gold rises to $2,000 per ounce as Jim Rogers suggests, stock-picking skills will matter less when it comes to undervalued or underperforming names. If gold ends up being a huge asset bubble and rapidly falls to $1,000 per ounce, stock picking also won't matter. Rising tides lift all ships, receding tides beach all ships.Barrick Gold has the biggest by market cap in our universe and it seems odd that the biggest is also trading at a discount when the gold market is still on fire. At $47.32, its 52-week trading range is $33.65 to $48.02. With a $46.6 billion market cap, this Canadian giant is listed as having an average price target of $55.13. The implied upside potential here is about 16%, implying a whopping additional $7.5 billion in market cap.