With gold at record high prices, investors may feel late to the party. But managers still see value in "them thar stocks.”
“If gold continues to rise, gold stocks will start to outperform because of expanding margins,” says Adrian Day, Chairman and CEO of Adrian Day Asset Management.
After lagging for months or even years, Day sees value in gold stocks including Royal Gold , Yamana Gold and Newmont .
“Royal Gold has had a good run but, at $50 a share, it is still below its high which was about $55 per share. When you look at record prices for bullion, you expect stocks to be at record highs and they are not.”
As a value investor, Day says Yamana shares offer a price-to-book of 1.3, debt-to-assets ratio of about 4 percent and a P/E of 13 times forward earnings.
A company like Yamana with a “great” pipeline could “double its production and be a $20 stock in the next 3-years,” he says.
“Gold stocks are not expensive by and large,” says Day. Newmont Mining is another major gold producer that is trading well off its high of $65.50 per share.
Two of the value stocks Day likes are also in the “Top 10” list of the Gold Stock Analyst. A subscription-based newsletter, the basket of its 10 stocks returned over 70 percent in 2010, and is down 3.5 percent year-to-date. Of note in its March newsletter, the price target for Goldcorp is raised to $69 per share. Shares of Goldcorp traded up to a multi-year high on Tuesday with a forward P/E ratio of 24. Editor John Doody notes that he does not recommend investors hold a single stock but prefers a basket of 10 gold stocks to mitigate risk.
Note: Adrian Day owns shares of Royal Gold and Yamana Gold for clients and RGLD personally. Day plans to purchase Newmont Mining for clients.