A Home Run In Gold?

Gold, Bars, Wealth, Finance, Gold Bars, Deposit

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Is there anything out there that is still inexpensive? Indeed, gold is cheap. And so are gold mining shares, asserts Mark Skousen, editor of Home Run Trader.

There are seven key reasons why gold, “the barbarous relic,” has long been sought after as a store of value:

  1. Unlike wheat, corn, or rice, it is durable.
  2. Unlike artwork, it is divisible.
  3. Unlike lead or copper, it is convenient.
  4. Unlike real estate, it is identical.
  5. Unlike paper, it possesses intrinsic value.
  6. Unlike aluminum or copper, the supply is greatly limited.
  7. Unlike, say, molybdenum or rhodium, it has a long history of acceptance as money.

Last but not least, gold is far more stable and less volatile compared to Bitcoin and other cryptocurrencies, which have been suffering from one crisis or another (the FTX scandal being the latest).

However, gold is unique in other ways that make it a tricky investment. Unlike cash or bonds, gold doesn’t accrue interest. Unlike a business, it does not generate earnings. Unlike a stock, it does not pay dividends. And unlike real estate, it does not generate rental income. That makes gold difficult to assess even under the best of circumstances.

The decline in gold — despite the highest inflation in 40 years — has also pressured gold shares. But here, we can use traditional value metrics. And gold stocks are now inexpensive relative both to their traditional valuations and to the price of gold itself.

One of the best ways to play this is with Newmont Mining Corp. (NEM). With a market cap of $37 billion, Newmont has mining operations in the United States, Australia, Peru, Indonesia, Canada, New Zealand, Ghana, and Mexico. Approximately 70% of its mines are in North America and Australia, giving the company less political risk than most gold miners.

In 2019, it acquired Goldcorp, gaining new mines, new people, and more assets. It now has more than 100 million ounces of proven and probable gold reserves. It also produces silver, copper, and zinc, and it runs a merchant banking operation.

The stock is inexpensive at just 17 times prospective earnings for the next 12 months. I expect earnings per share to rise from $2.24 this year to more than $3 in 2023. And that’s if there is no increase in the price of gold. With all-in costs of $1,150 per ounce, profits will grow dramatically with an uptick in the price of gold.

And you’ll earn a 4.73% dividend while you wait. This is an undervalued gold play with strong management, excellent prospects, and plenty of upside potential.

About the Author

Mark Skousen is a financial economist, university professor, and author of over 25 books. Dr. Skousen was recently listed as one of the top 20 living economists in the world. In 2018, Steve Forbes presented him with the Triple Crown in Economics for his work in theory, history, and education. Dr. Skousen is a Presidential Fellow at Chapman University in California, where he received the "My Favorite Professor Award" in 2019.

He has worked for the government (CIA), non-profits (president of FEE), and runs FreedomFest, "the world's largest gathering of free minds," every July in Las Vegas. He has also taught economics and finance at Columbia Business School and Columbia University. Since 1980, Dr. Skousen has been editor-in-chief of Forecasts & Strategies, a popular, award-winning investment newsletter.

He has written for the Wall Street Journal and Forbes magazine and has made regular appearances on CNBC's Kudlow & Co., the Santelli Exchange, and C-SPAN Book TV. Dr. Skousen's bestsellers includeThe Making of Modern Economics, Investing in One Lesson, and The Maxims of Wall Street. 

Based on Dr. Skousen's work,The Structure of Production (NYU Press, 1990), the federal government began publishing in Spring 2014 a broader, more accurate measure of the economy, Gross Output (GO), every quarter along with GDP.

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