Gold. Is. Hot. With the precious metal topping the $1,000 mark and trading at its highest level in 18 months, even investors who never looked at gold before are taking notice.
But before you dump a chunk of your money into gold, you need to recognize that most gold stocks are extremely volatile.
They are often small, thinly-traded companies. They are typically located in undeveloped regions of the world, where industrial infrastructure is shoddy, and political instability is common. And they face supply and demand issues that can turn on a dime.
So how can you cash in on gold without all the drama? Follow the facts. If a precious metals company has a track record of outperforming the market and constantly growing sales and earnings even when gold prices were significantly lower, it’s natural to assume the company is booming now that prices are on the rise.
GoldCorp Is the Low-Cost Producer
One company that fits that description is my favorite gold stock, Canada’s GoldCorp (GG). GoldCorp is one of the largest precious-metal mining companies in the world, operating mainly in Canada and South America. The company produces more than 2.3 million ounces of gold annually and has about 45 million ounces in proved and probable reserves.
But don’t be fooled by the name. GoldCorp also owns 1.2 billion ounces of proved and probable silver reserves and 1.4 billion pounds of copper reserves. Silver and copper prices have been on a tear lately, too, and the diverse mining operations of GoldCorp makes it a great investment right now.
In the second quarter, GoldCorp’s production rose 5% over the same quarter a year ago. It cost GoldCorp $310 per ounce to mine gold during the second quarter, which is the lowest of all its major competitors, so as gold prices continue to rise, the company’s operating margins and cash flow should increase accordingly.
Since GoldCorp is the low-cost producer, it stands to profit the most from the rise in gold prices over the long term. In the past three months, Wall Street has revised its consensus earnings estimate for GoldCorp 15.5% higher, which bodes well for its next quarterly earnings announcement. The stock is a great defensive and a perfect way to protect your portfolio from a nasty bout of inflation.
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