Self-Direct Your IRA Over to This Gold-Mining Stock

NEW YORK (TheStreet) -- I'm a strong believer of self-directed IRAs for retirement investing simply because it gives you the freedom to make your own investment decisions without taking away the opportunity of sufficient diversification.

If you're looking to buy stocks to maintain a balance, Alamos Gold (AGI) is one to consider.

Alamos is a name in the mining space that rarely gets mentioned, probably because it doesn't have the biggest reserves. But it's undeniable that all metrics available to us suggest the company is currently undervalued. Its shares, trading around $11, are down 14% for the year to date.

Alamos is super-efficient at keeping costs low, which helped the company to have the highest gross margin in a turbulent 2013.

In 2013, the company reported an all-in sustaining cash cost of $772 per ounce, which is one of the lowest -- if not the lowest -- in the industry. Just so you can appreciate that number, note that Newmont Mining (NEM) and Goldcorp (GG) reported all-in sustaining cost, or AISC, of $1,104 and $1,031, respectively.

Here is a history of top gold miners' AISC over the last two years.


The simple reason why Alamos Gold is able to outperform its competitors is it focuses on low-cost mines. And when a company can keep costs low in a very volatile industry like the mining industry, it's easy to keep healthy margins.

AGI Gross Profit Margin (Annual) Chart
AGI Gross Profit Margin (Annual)
data by YCharts

As the chart above shows, Alamos kept over 65% of its total revenue as profit. This becomes more appreciable when you compare it with other miners. Newmont Mining was the closest, with just a little more than half of what Alamos kept.  Alamos even outperforms the industry average of 47%.

Moreover, while the chart shows that all gold miners saw their margins shrink, there is one thing to appreciate about Alamos -- its shrinkage was a lot less than its competitors. Granted, 2013 was hard for miners as price of the yellow metal plunged. But the chart shows us that the fall of other miners' margins was more steep, apart from Barrick Gold (ABX).

The relatively tiny shrink in Alamos' margins is a result of the company's effectiveness at lowering costs. It means that on occasions when the price of gold falls like it did last year, the company can still be very profitable.

Another thing to appreciate here is that Alamos has a long-standing reputation of putting out high margins. There has never been a time over the last four years that other miners had better margins than Alamos. More interestingly, we can infer from the chart that Alamos has been more consistent at keeping costs at low levels than other miner on the chart, which is a top requirement for retirement investing.

The stability I mentioned above becomes more apparent when you look at the company's debt column.

AGI Debt to Equity Ratio (Quarterly) Chart
AGI Debt to Equity Ratio (Quarterly)
data by YCharts

As the chart above shows, the last time Alamos recorded a debt in its books was 2008. Let's face it, staying out of debt is one of the most difficult things in the mining industry -- almost as difficult as keeping costs low.

Put all these factors together and I recommend Alamos as a good retirement stock. Granted, it doesn't have the highest dividend payout/yield in the industry. It currently pays an annualized dividend of 20 cents per share, working out to give a 2% yield. But there is nothing that can take the place of its stability, which is a big factor in determining if a stock is good for a retirement portfolio.

And if the company is able to maintain its high level of stability, the odds are high that it will become a dividend champion in future.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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