My Favourite Gold Stock

I discussed previously on my favourite silver stock last year, SLW.Besides GDX, there is one stock I have traded for the last 5 years. The stock is Gold Corp or Symbol: GG

So far the gold miners are still lagging behind the rise in gold prices. But cash flow are improving and so is profit margin as the price of gold goes up.Big miners are value play opportunity now. Companies should do very well as they report earnings during the next 1-2 months. The high price of gold favors their performance. Cost are kept relatively stable. Margins, cash flow and earnings have expanded. The market has not fully price in the margin expansion. Thus positive surprises can be expected.

Most big caps on gold moves in tandem with gold price. I expect that some will outperform the other once gold price break up again. I expect this to happen some time this year.

GG remains my favourite for many reasons:

Comparing, Goldcorp, NewMont and Barrick, I like Gold Corp.

Stock            Estimated              Estimated              Percent Change

                    2010 Earnings          2011 earnings

GoldCorp       $1.4b                     $2.5b                      +86%

Newmont       $1.7b                      $2.0b                     +20%

Barrick          $2.8 b                     $4.0 b                     +42%

Data from Bloomberg

As you can see, there is one clear winner. Goldcorp's net earnings will rise 86% from 2010's estimated net earnings. Barrick Gold's net will rise 42% in that scenario, while Newmont's nudges up 20%.


It turns out, Goldcorp is the cheapest among the three as well.


Here is another comparison:

Stock                     P/E est. 2010 earnings                 P/E est 2011 earnings

GoldCorp                24.2                                            13

Newmont                18.6                                            15.5

Barrick                    19.4                                            13.7

At more than 24 times last year's earnings, Goldcorp may look expensive. But using my numbers for 2011, it's a great deal.

There's no guarantee gold will remain at $1347.5.There is still a probability it could sink to $1,200.  It could also skyrocket to $1,800. But the big, long-term trend here is up… and if it continues, big gold miners are going to start rolling in profits. And the best deal in "big gold" is Goldcorp.

Gold Miner	PE Ratio at $1,350 per oz.	PE Ratio at $1,200 per oz.
Goldcorp	10.8	13.6
Newmont Mining	13.5	29.7
Barrick Gold	11.6	19.1

If you lower the gold price, they all get more expensive. But take a look at Goldcorp. Even if gold falls another $150 per ounce, it's still a great deal.