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How to Buy High Gold Prices: 5 Stocks vs. Miners ETF

Alix Steel, TheStreet
Wednesday, 22 Sep 2010 | 4:44 PM ET

Day after day, gold prices are conquering new highs, and investors without exposure to the precious metal may be wondering where to start.

Gold stocks are a risky but potentially profitable way to buy gold. The stocks can offer as much as 3:1 leverage, but picking the right ones is tough.

Gold
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Gold

Many investors who aren't stock pickers opt for the Market Vectors Gold Miners, a basket of diversified large mining companies, as a safer bet. Shares have risen 16% year-to-date while gold prices are up 13.6%.

Before buying the ETF, it makes sense to drill down on the top 5 stocks in the fund.

Here's a look at the basic financials on each company, how the stocks have performed of late, and Wall Street's opinion of where the shares are headed.

Barrick Gold makes up 16.71% of the GDX with a market value of $1.222 billion and a total of 27.20 million shares.

Company Profile: Barrick Gold is engaged in the production and sale of gold, as well as related activities such as exploration and mine development and is the largest gold miner in the world. Barrick has interests in 25 mines on 5 continents. The company produced 7.42 million ounces of gold in 2009 and has reserves of 139.8 million ounces in addition to 6.1 billion pounds of copper reserves. Barrick has a $40.01 billion market cap.

Income Statement: Barrick's second quarter net income rose 59% to 79 cents a share. Operating cash flow rose 42% to $1.02 billion from $718 million a year earlier. Gold production was 1.94 million ounces at a total cash cost of $457 an ounce.

Balance Sheet: Barrick has $3.9 million in cash and cash equivalents and $7 million in long-term debt. The company pays a quarterly dividend of 12 cents a share. Barrick is mostly de-hedged but still has about $700 million of obligation associated with the remaining floating contracts. The liability has been fixed, however, and does not vary with the gold price

Analyst Ratings: An average of 85.7% ratings on the stock are buys, with an average price target of $54.74. The stock trades at a forward looking price-to-earnings ratio estimate of 13.62, which is at a discount to the S&P. Shares are up 14.25% year-to-date.

Goldcorp comprises 12.12% of the GDX with a market value of $873.16 million and a total of 20.42 million shares.

Company Profile: Goldcorp is engaged in the acquisition, exploration, development and operation of precious metal properties throughout North and South America. Goldcorp produced 609,500 ounces in the second quarter of 2010, up from 582,400 a year earlier. The company recently outbid Eldorado Gold for Andean Resources by offering $3.4 billion for the company, a 35% premium to the share price.

Income Statement: Goldcorp missed on earnings in the second quarter reporting an adjusted profit of 27 cents a share, slightly below expectations. The company delivered record-high cash flow of $382.6 million. Total cash costs were $448 per ounce in the latest quarter vs. $402 per ounce in the same period in 2009.

Balance Sheet: Goldcorp has $732.6 million in long-term debt, according the company's second-quarter report and $497.2 million in cash and cash equivalents.

Analyst Ratings: Goldcorp has 13 buy ratings on its stock, which amounts to 65% of total ratings, with an average price target of $52.99. The company trades at a forward P/E ratio of 24.6, which is at a slight premium to the S&P. The stock is up 8.69% year-to-date.

Newmont Mining is 11.34% of the GDX with a market value of $853.60 million and a total of 13.57 million shares.

Company Profile: Newmont Mining is one of the largest gold mining companies in the world with a $41.15 billion market cap. It has assets in the U.S., Australia, Peru, Indonesia, Ghana, Canada, New Zealand and Mexico. As of the fourth quarter of 2009, the company had 91.8 million ounces of proven and probable gold reserves. The company recently announced a 50% increase to its quarterly dividend to 15 cents a share.

Income Statement: For the second quarter, Newmont reported adjusted income of 77 cents a share, which was below expectations. Sales also missed the mark amounting to $2.15 billion versus the $2.22 billion expected. Cash costs grew to $492 an ounce as operating costs at its Australian Boddington mine grew due to lower gold grades than the company had anticipated. Newmont is still expecting to produce 5.3 million to 5.5 million ounces of gold this year, just at higher costs.

Newmont Mining, contd.

Balance Sheet: Newmont has $3.602 billion in cash and cash equivalents with $4.28 billion in long-term debt.

Analyst Ratings: As for analyst ratings, 50% are buys with a $65.58 average price target. Newmont trades at a forward looking P/E ratio of 15.72 and trades at a discount to the S&P 500. The stock is up almost 33% year-to-date.

AngloGold Ashanti is 5.85% of the GDX with a market value of $445.68 million and a total of 10.02 million shares.

Gold
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Gold

Company Profile: AngloGold is a South African gold producer with 21 operations all over the world. As of December 31, 2009, the company had produced 4.60 million ounces of gold and made $3.8 billion in sales revenue.

The company has a $16.49 billion market cap and recently announced an equity offering of 15.8 million shares in the hopes of raising $686 million. AngloGold is hoping to use the funds to eliminate all of its gold hedges, of which it still has 3.22 million ounces. The company will then be able to take full advantage of rising gold prices.

Income Statement: AngloGold's quarterly reports are a nightmare, due to its large hedge book. Bottom line is that the company is operating at a loss. It earned 35 cents a share in the second quarter by producing 1.126 million ounces of gold, but reported a net loss of 49 cents a share due to hedging and capital expenditure costs.

In comparison to other big gold companies, AngloGold's cash costs are also relatively high at $617 an ounce. The company must also contend with a strong African currency, the rand, which makes operating in the country more expensive.

Balance Sheet: AngloGold has a total of $866 million in cash and cash equivalents with $1.65 billion in long-term debt.

Analyst Ratings: AngloGold has zero buy ratings, 5 holds and 1 sell on the stock with an average price target of $44.91. Its estimated forward looking P/E ratio is 17.75, right in line with the S&P. The stock has gained almost 11% year-to-date.

Kinross Gold is 4.80% of the GDX with a market value of $379.03 million and a total of 20.74 million shares.

Company Profile: Kinross Gold is a leading gold and silver ore mining company with properties in the Americas and Russia. In 2009, the company produced 2.24 million ounces of gold with 51 million ounces of proven and probable reserves.

Kinross Gold, contd.

The company recently bought Red Back for $7.1 billion, a 21% premium to the share price. Kinross also sold its stake in Harry Winston Diamond Corp and Diavik Diamond Mine joint venture for a total of $406 million. Kinross has a market cap of almost $13 billion.

Income Statement: Kinross reported adjusted earnings of 16 cents a share in the second quarter of 2010. The company produced 538,270 gold equivalent ounces, which was 4% lower than a year earlier, at a cash cost of $496 an ounce, which was 14% higher than a year earlier.

Balance Sheet: Kinross has $694.8 million in cash, cash equivalents and short-term investments, along with $589.1 million in long-term debt.

Analyst Ratings: Sixty percent of the ratings on Kinross are buys, with 7 holds and 1 sell. The average price target is $21.03 and the forward P/E estimate is 23.57, so the stock trades at a premium to the S&P. Shares are down almost 5% year-to-date.

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Disclosures:

TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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