With the price of gold up nearly 30 percent for the year and climbing back toward the $1,800 level, it’s hard to imagine any stock outpacing the gains gold has made in 2011. But that’s exactly what renowned hedge-fund manager David Einhorn is forecasting.
Einhorn predicts that gold mining companies will outperform the underlying commodity in the coming months. That could translate into a big bump for gold stocks.
“With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further,” Einhorn said. “Since we believe gold will continue to rise, we expect gold stocks to do even better.”
If gold stocks do in fact catch up to, and eventually outpace, the rising rate of gold bullion, it will be helpful to know which stocks stand to make the biggest gains. With the price of gold averaging well above $1600 per ounce over the last year, many gold mining companies are turning a profit. But which of them are best poised to turn those profits into stock market returns?
Here are four gold stocks with promising future “prospects”:
- Newmont Mining Corporation (NYSE: NEM): Newmont recently reported a net income of $1.6 billion for the first nine months of 2011. That’s up 21 percent from $1.32 billion in net income for the first nine months of 2010, an improvement of $2.68 per share. NEM stock has risen 12.5 percent over the past year, and 157 percent over the past three years. It’s currently trading at $71.90 per share – near its 52-week high of $72.35 – and the consensus analyst target price has been set at $79.62.
- Barrick Gold Corporation (NYSE: ABX): The largest gold miner in the world reported record earnings of $1.39 billion in the third quarter. With 26 operating mines across five continents, Barrick is the “gold standard” in the industry. No gold mining company stands to grow its revenue more as the price of gold continues to rise.
- Kinross Gold Company (NYSE: KGC): With a market capitalization of $16.94 billion and a stock price of $14.62, Kinross is a cheaper gold stock option that’s growing even faster than the big boys mentioned above. Kinross reported a 134 percent year-over-year increase in net earnings in the third quarter. The company’s sales have grown just under 33 percent over the last five years, and it expects sales to jump 54 percent over the coming year.
- Yamana Gold Corporation (NYSE: AUY): Yamana reported quarterly earnings of $190 million, up 63 percent from the third quarter in 2010. That’s 26 cents a share compared to 16 cents per share a year ago. Perhaps an even better sign of this Canadian gold producer’s steady cash flow is Yamana’s decision last week to boost its dividend payout for the second time this year. The payout, while modest, is up to 5 cents per share from 3 cents per share as recently as April. With a forward P/E ratio of 12.64 and a reasonably valued stock price of $16.42, Yamana is another gold stock that seems to be worth the investment.