Analysts Forecast Higher Gold Prices
I asked, and you responded.
In yesterday's issue of Small Cap Investor Daily, Precious Metal Monday, I suggested readers send in the ticker symbols of their favorite gold and silver mining companies. After spending the morning sifting through a ton of e-mails and looking at the companies you sent in, I've weeded out the best, and most popularly requested.
I have to say, there are some pretty good companies here. And in fact, some of you even mentioned the mid-tier gold company I own in the Small Cap Investor PRO portfolio - but I can't mention that company by name today. To learn more about this small cap mining company, you can click here.
Nobody was able to come up with the name of the silver mining company I own! Some stocks are still flying under the radar I suppose, but I had thought with this stock's 12.6 percent move last week more precious metal investors would have picked up on it. You can learn more about this company when you sign up for a trial subscription to Small Cap Investor PRO here.
***There is one overarching thing that was abundantly clear when I started analyzing your best gold mining prospects - they all are growing by leaps and bounds.
There were three stocks that I looked at: Allied Nevada Gold (AMEX: ANV), El Dorado Gold (NYSE: EGO), and New Gold (AMEX: NGD). All of these companies are growing revenues and earnings per share by significant amounts. Check this out...
Using analyst estimates, I calculated an average revenue growth expectation for these three firms of 104 percent for this year, and 32 percent for 2011. Of course, next year's growth expectation will be conservative since we can't be assured that gold prices will continue to increase. But if they do, revenue growth will be even greater than the 32 percent currently forecast.
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**Earnings per share expectations are even more astounding: the average EPS growth expectation for these three companies is 135 percent this year, and 70 percent in 2011. The fact that in all cases EPS is expected to grow more than revenues should be your tell that analysts do expect gold prices to continue to increase.
That means you should be buying gold mining stocks. But as always, we want to buy at good valuations. This brings me to my next point about investing in gold stocks...
I noticed that all three of these companies are trading with reasonably high PEs - not that surprising given their growth expectations. The most reasonably priced is New Gold, with a forward PE of only 18.8. But New Gold comes in below the competition with its trailing-twelve month margins so the 'discount' indicates investors aren't painting all gold mining companies with the same brush - a good sign.
New Gold has a 20.5 percent operating margin, and a negative 50 percent profit margin. In sharp contrast, both Allied Nevada Gold and El Dorado Gold have approximately 30 percent profit margins. El Dorado has the best operating margin, 41.6 percent. Allied Nevada's trailing-twelve month operating margin is skewed - it comes in below its profit margin because of an income tax credit recorded two quarters ago.
El Dorado appears to be the best value at current price levels. The stock has a forward PE of 25 versus Allied Nevada's forward PE of 30.
***I have to say, these are compelling investments. But I still like the gold company I own the most. Whereas the three companies just described have market caps between $1.4 billion and $9 billion, mine has a market cap of only $185 million, virtually zero debt, and a forward PE of only 7.6.
That's an absolutely dirt cheap valuation, and it's not because the company lacks growth. People just haven't discovered this company yet.
It should grow revenues by more than 40 percent this year and EPS by 75 percent. And its operating margin of 42 percent is greater than any of the three companies discussed above. Its profit margin of 22 percent lags that of Allied Nevada and El Dorado, but given that the company is a fraction of the size I expect this has huge potential to improve as the company grows, and finds efficiencies.
For the money, I'll stick with my company and wait for its stock to soar and bring the PE on par with the competition. To learn more about this small cap mining company, you can click here.
***Thanks for sending in your tickers, I enjoy checking out the companies that you suggest. I hope you find these reviews helpful, and are able to use the research to find profitable investments.
Have you used Small Cap Investor Daily recently to make profitable investments, or short-term trades? Send me an e-mail describing your investing success at: editorial@smallcapinvestor.com. I always like to hear your stories.
