3 Shares to Rise Sharply if Gold Can Bounce Back
LONDON -- In the last 12 months, gold is down 9.3%. This has damaged the profitability of precious metals miners. If gold can get back to its record highs, shares in these three companies could turnaround fast.
In the last three months, as gold has fallen 8.8%, Randgold Resources shares have lost 18.7%.
Unlike some of the other large resources companies, Randgold is a pure play on gold mining. Like all such firms, its profits are geared to the price of the commodity that it is producing. From a quick look at Randgold's recent trading update, a 10% increase in prices achieved would deliver an approximate 12% increase in gross profits.
The company recently announced a 25% increase in its dividend to shareholders. Profits and dividends are forecast to increase for the next two years running. Randgold shares are priced at just 10.4 times expected 2014 earnings.
Centamin has suffered recently from some legal difficulties that forced production to be halted at its mine in Egypt. However, operations have been running again as usual since December.
These challenges mean that in the future, Centamin's share price will be heavily influenced by risk perceptions as well as the underlying gold price.
Analysts are forecasting 2013 earnings per share of $0.26. This puts the shares on a 2013 P/E of just 3.1. Although there is significant political and market risk, that looks very cheap. Centamin is more about Egypt's future than gold's.
Antofagasta is the largest and most diverse of the three companies. Much of its production is copper but the company does have significant gold operations.
In the last three months, Antofagasta shares are down 16.9% as investors have taken fright.
In its most recent production report, Antofagasta announced that cash costs for the quarter were 14.3% ahead of last year. This could have a dramatic downward ratcheting effect on profits if output prices fall further.
Analysts expect 2013 EPS of $1.33, with a dividend of $0.49. That equates to a forward P/E of 12.5 and a yield of 2.9%.
If you have been losing money on your gold investments and are looking to diversify into a sector with better earnings visibility, then our analysts here at The Motley Fool may have found the share for you. The company featured in our free report "The Motley Fool's Top Income Share for 2013" is a rock-solid blue chip offering real upside potential and a large dividend yield -- something that gold bars will never do. The report is 100% free and will be delivered to your inbox immediately. Click here to get this tip for 2013.
The article 3 Shares to Rise Sharply if Gold Can Bounce Back originally appeared on Fool.com.David O'Hara has no position in any stocks mentioned. The Motley Fool recommends Antofagasta. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.