Welcome to the Stock of the Day.
Canada’s Goldcorp (GG) is in the news after announcing plans to buy Osisko Mining for C$2.6 billion. However, the announcement didn’t instill confidence in investors–GG shares opened down at today’s open.
What has Wall Street so skittish about GG, and is this a buying opportunity?
With 6,200 employees worldwide and nearly $5.5 billion in annual sales, Goldcorp is one of the world’s leading gold producers. Currently the company operates five mines in Canada (its home country) and in the U.S., three in Mexico, and three in Central and South America. The company just announced that it reached its 2013 goals: Gold production jumped 11% over last year.
GG goes ex-dividend January 14. Shareholders of record (those who hold shares at today’s close) will receive 5 cents per share on January 24. Right now, Goldcorp’s dividend works out to a 2.6% annual yield, among the highest in the gold industry. And what’s interesting about Goldcorp is that this company pays dividends every month rather than every quarter. Since 2009, the company has more than tripled its dividend yield. However, even the company’s impressive dividend track record can’t get me to buy this stock and I’ll discuss why momentarily.
For 2014 Goldcorp hopes to increase gold production by 13% to 18% while reducing costs 15-20% over the next two years. Even so, the analyst community doesn’t have high hopes for the company. This quarter, Goldcorp is headed towards a 11.4% drop in sales and a 60% plunge in earnings. For FY 2014, those estimates improves, but only to reflect 8.6% sales growth and a 8.7% drop in earnings.
Goldcorp goes head-to-head with other mining companies like Barrick Gold (ABX), Kinross Gold (KGC) and Newmont Mining (NEM).
However, it’s clear that all that glitters isn’t gold: When I ran these stocks through my screens, I found that each one was an F-rated sell. What kills these companies’ grades is the fact that institutional investors aren’t buying; buying pressure has hit rock bottom. If you really want to get into metal stocks, I recommend you stick with a more diversified play like Handy & Harman (HNH), a mid-cap stock that’s currently a B-rated buy in Portfolio Grader
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. It’s clear that gold has gone out of favor with institutional investors—buying pressure for GG has fallen so much that GG receives an F for its Quantitative Grade. Goldcorp also fails on six of the eight fundamental metrics I graded it on. While things are looking up for 2014, I just can’t buy a stock which such low buying pressure in good conscience.
Bottom Line: As of this posting I consider GG an F-rated Sell.