Newmont Mining Corp (NYSE:NEM) is one of the world’s largest gold producers with operations on four different continents and proven gold reserves of 68.5 million ounces. As such, NEM stock is highly correlated to the price of gold and other precious metals. While both gold and gold stocks have been somewhat off the radar lately, I think now may be an opportune time to add some golden exposure to your portfolio.
NEM reported earnings last Thursday, with earnings-per-share coming in at 35 cents, handily beating estimates of just 31-cents-per-share.
Revenues also beat at $1,879 million versus consensus of $1,836 million.
The stock initially sold off on the report with Newmont stock dropping sharply on the news. To me, the ability to buy a stock at lower levels after better earnings makes NEM stock an even greater value.
Why NEM Stock Deserves Your Attention
From a technical perspective, Newmont shares held the critical $35.50-support-area, bouncing strongly off this level. This area was previously resistance in NEM stock and it was the basis for a strong rally in late August.
NEM also put in a reversal day yesterday, opening lower only to reverse course and close sharply higher on the day. This type of price action is sometimes emblematic of a low being formed in the stock, especially given it occurred right at a major support level.
Newmont stock was also extremely oversold with a 9-day RSI reading approaching 25. The previous instances when NEM was similarly oversold proved to be significant intermediate-term lows in the stock.
Gold also held major support at the $120.25-area, which should provide further upside fuel to NEM stock over the coming weeks. The U.S. Dollar is finally showing signs of weakness after a major rally, which should definitely provide solid underpinnings for a continued rally in gold and gold stocks.
Implied volatility (IV) is near the lowest levels of the year (7% percentile), which means option prices are comparatively cheap. This favors option buying strategies. To position for a pop in Newmont stock, a simple call buy makes intuitive sense.
NEM Trade Idea
Buy NEM Nov $35 calls at $1.55.
The maximum risk on the trade is the premium paid of $155 per contract. Upside break even on the trade is $36.55 or just 1% higher than the $36.23 closing price of Newmont stock.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at timbiggam@gmail.com.
