Jensen: Two Gold Plays With Good Prospects
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Gold prices have been stuck in a narrow range for the last few months. Wednesday, the yellow metal crossed over the $1600 per ounce level and it looks like the move could continue Thursday based on early trading. I have thought for some time that the gold miners are one of the cheapest and most unloved sectors in the equity market. Given many producers are minting over $1000 per ounce at these current gold prices and are trading with single digit price-to-earnings ratios, they are worth at least a trade. Here are two cheap miners with the majority of production from stable geographical areas, solid dividend yields and good growth prospects.
- From 2007 to 2011, the company grew adjusted earnings and operating cash flow at a 46% and 34% annual clip, respectively.
- The company has a strong balance sheet, pays a solid 2.4% yield, and has raised its dividend payout by 260% since 2006. It also gets roughly 70% of its gold production from politically stable North America and Australia. Only 7% of production comes from Africa.
- The stock is selling at the very bottom of its five-year valuation range based on price/cash flow, price/book, price/earnings and price/sales ratios. ABX is selling for just over 6x forward earnings.
- The 21 analysts that cover the stock have a median price target of $56 a share. ABX is rated a Strong Buy at Standard & Poor's with a $62 price target.
- The stock has a generous yield of 3.2% and has raised its dividend payout more than 30% on average annually over the last five years.
- The stock is priced near the bottom of its five-year valuation range based on price/cash flow, price/book, price/earnings and price/sales ratios. NEM is selling at just over 9x forward earnings.
- The company believes it can raise gold production to up to 7 million ounces annually by 2017. This would represent a 20% to 35% increase over current production levels.
- The median price target on Newmont by the 17 analysts that cover it is $65 a share.
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