I’m not much for investing in precious metals or gold-mining stocks. Nevertheless, it is worth taking a look at Newmont Mining Corp (NYSE:NEM). NEM is reporting earnings tomorrow morning before the bell. And I know there are some investors out there who are watching this company carefully.
I’ll get into what is expected from NEM stock earnings in a moment. First, however, I want to point out why neither precious metals or stocks like NEM stock are good for much other than as trading vehicles.
The problem with gold and other precious metals is that their prices move based on factors that have nothing to do with earnings growth. Sure, mining companies do move with respect to earnings growth, but the underlying metals obviously don’t have earnings power. They are simply stores of value.
I don’t think there’s anything wrong with holding 1% or 2% of your total assets and some kind of a hard asset such as precious metals, but simply holding onto it with the expectation that it will deliver outsized returns over time is going to take you nowhere.
If it weren’t for the mortgage crisis, the price of gold probably wouldn’t have gone anywhere, just like it hadn’t gone anywhere the previous 30 years.
When you look at a chart of NEM stock versus the S&P 500 going back to 1980, it’s pretty clear where the better investment was. While I’m sure any holder of NEM stock is not going to complain about the 335% total return, I think they may be disappointed at the comparative 2,378% return in the S&P 500.
Even at the worst of the mortgage crisis, NEM stock was up 170% but the S&P 500 — after its 55% decline — was up 600%.
When it comes to NEM stock, along with other gold miners, revenues are not going to be reliable because there’s no telling where the price of gold is going to be on any given day, or over any given year. I don’t like to invest in companies with this degree of unpredictability. While gold miners as stocks are a way of smoothing out the volatility that gold has, I view them as trading vehicles more than anything else.
NEM Earnings Predictions
As for earnings, however, 12 analysts are looking for anywhere between 28 cents per share and 44 cents per share, with an average of 34 cents per share. That would be a 37% increase over last year. Revenues are pegged to be around $1.86 billion, up 12% from last year’s $1.66 billion.
While Newmont Mining has beaten estimates over the past four quarters, NEM earnings may be impacted in the second quarter due to six fatalities that occurred at a mine in Ghana.
Management has indicated that it wants to increase production and reduce costs going forward. There is certainly significant room for cost improvement. Newmont stock reported all-in sustaining costs of $924 per ounce in 2017. However, its competitor Barrick Gold (NYSE:ABX) has it down to $750 per ounce.
NEM also indicated that it will increase its dividend in 2018, possibly by more than 50%.
Bottom Line on NEM Stock
As I said, however, these particular stocks aren’t really for me. If NEM earnings spark a rally in Newmont Mining’s stock, I’d recommend putting your money behind ABX stock instead. I personally suggest you look elsewhere, however, if gold miners aren’t really your thing either.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.