Newmont Mining Corp (NYSE:NEM) reported an earnings beat and fell short on revenue. This report led to little change in the NEM stock price, which currently trades at just over $40 per share. With gold prices on the rise, Newmont stock looks positioned for higher profits for the foreseeable future.
However, given the ties of the stock price to the value of the metal it mines, I recommend looking beyond NEM stock to find a store of value.
Newmont Stock Beat Earnings, Missed Revenue
NEM reported Q1 earnings of 35 cents per share, 2 cents per share above consensus estimates. However, revenue proved to be a different story. Revenues of $1.82 billion show a 7.7% increase over year-ago levels. Still, this figure missed estimates by $20 million.
In the near term, Newmont Mining stock is poised to see growth. In past years, the stock has bounced between profits and losses based on the fluctuating prices of gold. However, for the next three years, analysts expect Newmont stock profits to stay on a steady growth path.
Whether that will translate into sustained stock gains remains unclear. The stock currently trades at a forward price-to-earnings (PE) ratio of about 30. This is well above both S&P 500 and industry averages. Also, even if the fiscal 2021 profit forecast of $1.91 per share holds, the PE would still stand at a higher level than historical averages.
Avoid NEM stock
Still, my colleague Lawrence Meyers describes the main problem with NEM stock well. The stock has seen little appreciation for decades. NEM stock currently trades at levels that were commonly seen in the mid-1990s. While NEM has seen little long-term gain in the past 25 years, the S&P 500 has risen about six-fold in that same amount of time.
Long story short, Newmont stock will likely only make investors money in a well-timed trade. The stock has a history of trading higher when gold prices increased and falling back when gold prices fall to lower levels. Also, it may not move in proportion to the value of the metal which it mines.
We live in an unstable world, so holding a portion of one’s assets in a store of value such as precious metal makes sense. However, if I were to do that, I would simply buy the physical gold.
Gold represents value in a crisis without the balance sheet risk of NEM or its peers such as Royal Gold, Inc (USA) (NASDAQ:RGLD), Barrick Gold Corp (USA) (NYSE:ABX), or Goldcorp Inc. (USA) (NYSE:GG).
Barring a high inflation scenario, I see no long-term value in holding any of these stocks. Investors who want a safe, stock market-based investment will do better in an S&P 500 tracker such as SPDR S&P 500 ETF Trust (NYSEARCA:SPY) or the Vanguard 500 Index Fund Investor Shares (MUTF:VFINX).
Those who want the security of precious metals should look outside of the stock market.
The Bottom Line on Newmont Stock
Although market conditions have left Newmont Mining stock poised for growth, those looking for a gold play or a store of value should look elsewhere. To be sure, the history of NEM stock has shown the equity to be a proxy for gold prices. However, this means the stock price has seen little growth over the past quarter-century.
Though the stock price may rise with increasing profits, NEM typically only makes investors money in well-timed trades.
If one has to own stock in this sector, I’ll echo Mr. Meyers’s recommendation of ABX stock. Barrick supports a lower PE ratio. Also, until it recently fell back to 1990s levels, it has sustained higher stock price growth.
Still, for everyone else who wants a gold-based investment, make it simple and buy the actual gold.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
