Neubert: Mining for Value in Gold Stocks

India might raise its import tax on gold again.  While this might affect the total amount of gold imports to India it’s hard for me to believe it will affect it much.  Indians buy gold as gifts and a small price increase shouldn’t have much of an affect on their demand.

Last year I got rid of most of my paper gold (GLD) and in the last few weeks have been buying gold mining companies.  Back before the commodity ETFs like GLD, people used to buy gold mining stocks as a proxy for gold.  It wasn’t perfect and it opened you up to all sorts of business risk unrelated to gold including mine accidents, unstable governments and management hedging mistakes.  Nowadays we don’t have to do this.

I heard Jim Cramer last week telling people to avoid the gold stocks and focus on the metal instead.  I think the movement out of gold stocks for nervous investors has created opportunity to buy solid businesses at a good price.

If you follow my portfolios on Kapitall you know that I’ve been buying American Barrick Gold (ABX) and Newmont Mining (NEM) over the last four weeks.   I like the fact that they you are paying a discount for their earnings.  Price of profit of 8 for Barrick and 9 for Newmont. Both have reasonable dividend yields between 2 and 3%.  I like Barrick a little better because its CEO takes a bit less for himself in terms of pay and the POP is lower.   Both companies engage in hedging the price of gold and have legacy mines that are profitable at much lower prices of the yellow metal.  This means sudden drop in the price of the gold, while still painful, won’t hurt as much.  But don’t get me wrong; these are still companies with exposure to the price of gold, international strife, management mistakes and all the dirtiness and pollution that gold mining can create.

Disclosure:  I own ABX, NEM.  I also own several other mining companies as part of a very long term strategy that you won’t see in my Kapitall account.  These include Anglo American (AAUKY), Freeport McMoRan Copper and Gold (FCX) and GoldCorp (GG).   I hold ABX and NEM in accounts other than those available for sharing.  Purchases for ABX ranged in price from $32.34 to $38.05.  Purchases of NEM range from $45.48 to $46.03.  I may continue to add to these positions in the next few weeks.

Portfolio sharing:  One of my favorite features of Kapitall is the ability of users to share portfolios.  If you ask, I’ll share mine with you.  You can see some of my mistakes like the position I have held in the Brazilian iron mining company VALE SA (VALE).   There is a rumor that the powers that be are going to put my portfolios in the Kapitall Store, but I’ll share them for free to anyone who asks until then.

Disclaimer:

David Neubert is CoFounder and shareholder of Kapitall, Inc., the sole owner of Kapitall Generation, LLC (“KapGen”), an SEC registered broker-dealer and FINRA member.  Mr. Neubert is not an associated person of KapGen or any other broker-dealer and, other than his indirect relationship described above, he has no control or affiliation with KapGen.  His opinions are his own and do not reflect those of Kapitall Inc or any of its affiliates.   Nothing in this article is meant to constitute advice.