After gold stocks fell sharply on Wednesday, the firm believes investors should buy one gold producer and short another instead of selecting individual miners.
"Given the uncertain and volatile outlook for the US$ and thus the gold price, we have regrouped with three conservative pair trades that we expect to be profitable in a neutral or weaker metal price environment," JP Morgan wrote.
One of those pairs is Newmont Mining and Barrick Gold (ABX) . The firm suggests buying Newmont and selling Barrick based on "the idea that the deal where Barrick buys Newmont could be back."
Separately, TheStreet Ratings team rates NEWMONT MINING CORP as a "sell" with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate NEWMONT MINING CORP (NEM) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 46.5% when compared to the same quarter one year ago, falling from $398.00 million to $213.00 million.
- The gross profit margin for NEWMONT MINING CORP is currently lower than what is desirable, coming in at 29.61%. It has decreased significantly from the same period last year. Along with this, the net profit margin of 12.19% trails that of the industry average.
- Net operating cash flow has decreased to $324.00 million or 26.36% when compared to the same quarter last year. Despite a decrease in cash flow NEWMONT MINING CORP is still fairing well by exceeding its industry average cash flow growth rate of -55.48%.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 33.19%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 50.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- NEWMONT MINING CORP's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, NEWMONT MINING CORP swung to a loss, reporting -$5.16 versus $3.78 in the prior year. This year, the market expects an improvement in earnings ($0.95 versus -$5.16).
- You can view the full analysis from the report here: NEM Ratings Report