Newmont Mining (NYSE:NEM) has been on fire, and why shouldn’t it? While gold prices have been quiet lately, they won’t stay that way forever. The backdrop for the yellow metal is bullish. Therefore, the backdrop for NEM stock is bullish, too.
But let’s not pretend that the company hasn’t already seen a big boost. Once the dust settled in March, gold prices rebounded with a vengeance. NEM did as well, as did Barrick Gold (NYSE:GOLD), another company we are bullish on.
Although Newmont stock has dipped slightly from the new highs it made earlier this year, shares are still up 100% from the March lows. For 2020, Newmont is up 46%.
Gold as a Hedge
When the novel coronavirus sucker punched the global economy, central banks had to act quickly. They needed a coordinated effort to stave off a global depression and buy us some time until we had more resources. Governments, economies, hospitals and people needed more time, ventilators and information, among other things.
This forced the Federal Reserve, European Central Bank, and the rest to fire up the printing presses. They slashed interest rates, made cash appear overnight, stepped into credit markets and kickstarted what Paul Tudor Jones called the “Great Monetary Inflation.”
Known on the Street as PTJ, the legendary trader expanded on the topic, saying this is “an unprecedented expansion of every form of money unlike anything the developed world has ever seen.”
As a result, he scoped out gold, Treasuries, and even bitcoin. I personally prefer crypto assets to the yellow metal, but it doesn’t hurt to have some exposure to the latter in one’s portfolio. Tudor Jones even said bitcoin reminds him of gold in the 1970s.
One of his reasons for betting on bitcoin is that it’s the “fastest horse” in the group — and we know that to be true with its volatility. But the point is still the same: global central banks will drive up the prices of others assets, gold included.
NEM Stock as a Buy
Newmont Mining reported earnings earlier this month. Despite coming into the print at its year-to-date high, NEM stock barely flinched despite missing on earnings and revenue expectations.
However, the misses were minimal and growth expectations remain strong. Earnings of 40 cents per share missed by 2 cents, while revenue of $2.58 billion exploded higher by 43.3%, although missed estimates by $80 million.
For the year, analysts expect Newmont to earn $2.29 per share. In that scenario, that’s up more than 73% year-over-year. Those estimates are also up over the last seven, 30 and 90 days, where they stood at $2.25 per share, $2.11 per share, and $1.92 per share, respectively.
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A company with growing earnings expectations in 2020? That puts NEM stock in a category with few participants. In 2021, consensus estimates call for another year of robust earnings growth, at 37%. Revenue growth estimates in those two years stand at 13.4% and 7%, respectively.
However, there is a hiccup in there. Management expects Q2 (the upcoming quarter) to be its highest cost and lowest production quarter. So there could be a dip over the next few months. If that’s the case, investors may be wise to nibble some NEM stock.
That’s after management maintained its long-term outlook. They also said expenses should improve through 2024, alongside stable production.
Risks and Alternatives
There are many reasons to be bullish on gold, and thus bullish on gold stocks. However, that doesn’t mean it comes without risk.
Gold prices and gold stocks were hit in March, when an unprecedented decline and increase in volatility hit equity markets. This put pressure on precious metals, cryptocurrencies and fixed income, too. Investors were forced to sell assets — high quality or low — in order to meet their obligations.
So NEM stock, GOLD stock, and gold prices are not immune to this price action should it arise again.
Additionally, gold may not trade in the manner that investors expect. While gold seems like a no-brainer here — with investors needing just one difficult trait called patience — it’s possible that it doesn’t behave the way we expect.
For those that can’t decide between which gold stocks to buy, they can also consider owning the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX). The top holding in this case is NEM stock, followed by Barrick Gold. Between the two, they make up roughly 30% on the fund.
At the end of the day, though, NEM stock should continue higher. It’s got great growth prospects.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
