Frank Holmes has discovered the most profitable gold mining stocks based on free cash flow yields
Frank Holmes | May 4, 2020 | SmallCapPower: All of this (global money printing) is constructive for the price of gold, which I believe is on a path to exceed its previous record of $1,900 an ounce. Analysts at Bank of America now see the precious metal touching $3,000 within the next 18 months.
(The following is an excerpt from an article originally published on usfunds.com on April 27, 2020)
And if that happens, just wait and see what gold mining companies do.
Shares of senior producers, as measured by the FTSE Gold Mines Index, are up close to 20 percent for the year, but for the 10-year period they still trail the metal’s spot price performance. I believe this makes the group an attractive investment opportunity, especially now that gold mining is one of the few industries generating strong revenues and free cash flow on higher metal prices.
Think about it: With more than 26 million people applying for unemployment benefits in the past month and a half, many S&P 500 stocks’ revenue will dry up. Gold stocks should shine, by comparison, and I predict we’ll see new buyers who focus on companies with free cash flow, one of the best metrics of profitability.
Take a look below. What you see are the most profitable precious metal mining stocks with a market cap of $1 billion or more, based on free cash flow yield (FCFY). This is a metric that basically tells you how much cash the business is generating after taxes relative to how much it costs to operate. The lower the number, the less cash it’s making. The higher the number, the more cash it’s making.
Included in this list are highly liquid, mega-cap producers like Barrick (3.9 percent FCFY) and Newmont (also 3.9 percent), smaller firms such as the Russian Highland Gold Mining (5.4 percent) and everything in between. One royalty company, Wheaton Precious Metals (3.8 percent), is also represented.
Topping the list is intermediate miner Alacer Gold, which released positive initial drill results last week at its Copper Hill project in Turkey. The Denver-based producer reported “impressive grades” at the site, with the copper close to the surface and “very low” in contaminates.
Something I ought to point out is that the data above is as of December 31, as companies have not yet reported for the first quarter of 2020. For comparison’s sake, the S&P 500’s average FCFY for the same period was 5.6 percent. Even before the market tanked and gold began to surge, a few of the metal producers were already outperforming S&P 500 stocks in cash generation.
Keep your eyes on mining stock earnings in the coming days and weeks. Time will tell, but I expect to see that many generated healthy levels of free cash flow in the March quarter, which should help attract investors who up until this point may have been sitting on the sidelines.
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