Bargains, Steals, and Takeover Targets in Gold and Silver
by Jason Simpkins, Outsider Club A few weeks ago, I talked about the new gold bull that’s begun. Silver is headed up, too. In fact, silver is off to its best annual start since 1983, while gold outperformed every major market index in January. Gold prices surged 10% last month, compared to a modest loss for the S&P 500. The underlying cause of this bull is weakness in every major currency outside of the dollar. And the dollar itself could be due for a major setback if the Fed backtracks on its promise to raise interest rates later this year — something that’s increasingly likely. We’ve basically entered into a stimulus spiral at this point. The global economy is simply unable to function without its monetary lubricant. It’s like a junkie going through withdrawal. So gold is going up… as are gold miners. In fact, mining companies are outperforming the metal itself. And they may even be the better investment of the two going forward. The Bargain Rack The Market Vectors Gold Miners ETF (NYSE: GDX) is up 14.5% so far this year. And with good reason. These companies have been vastly oversold. GDX lost about 11% last year as investors sold on the stronger dollar. But as I pointed out months ago, gold miners — somewhat paradoxically — are in better shape than they’ve been in years. Gone are the days of bloated balance sheets and high debt loads. In are lower costs, higher yields, and a tighter focus on quality assets. The bottom line: There’s rarely been a better time to bargain hunt. Just take a look at some of these valuations…
- Alamos Gold Inc (NYSE: AGI) has a price/book ratio of 0.92 and a dividend yield of 5.3%.
- Yamana Gold (NYSE: AUY) has a price/book ratio of 0.55 and yields 4.7%.
- And Pan American Silver Corp (NYSE: PAAS) has price/book ratio of 0.85 and yields 4.2%.
Alamos is in an especially strong fiscal position, with about $360 million in cash and no debt. Its total cash costs were $700-$740 per ounce in 2014. And while that’s expected to rise to as much as $865 per ounce this year, the company is still very well positioned with gold at more than $1,220 and rising. With silver rallying some 17% from its November 2014 low, Pan American is another good bet. Continue Reading>>>