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Gold Mining Stocks Providing The Best Value in the Market
Pinnacle Digest writes: In his latest article, Adam Hamilton makes a strong argument for gold mining stocks and why they are presenting the best ‘value’ opportunity in the general markets today. Behind all his formulas and equations in his latest report, Hamilton’s premise begins with the fact that investing is about paying the lowest-possible price for the highest-possible profits. He breaks down exactly why gold stocks provide investors, at this moment, with the best P/E ratios.
Hamilton explains that sectors with low P/E ratios attract investors. Whether a fund manager typically buys technology stocks or not, if another sector is offering superior P/E ratios, he will join in. It’s simply about finding value.
Typically, gold hasn’t been able to attract the investing crowd in search of low P/E ratios because gold stocks have traded (especially from 2001-2011) at much higher ratios. Back in 2008, before the epic market crash, gold stocks on the HUI traded for 40x earnings! Today they are trading, according to Adam Hamilton, at 12x. It has been a shocking drop indeed. So why haven’t the value investors jumped onto the gold trade?
Hamilton states that the bears and anti-gold bugs “claim gold stocks are doomed to drift even lower indefinitely because the rising costs of gold mining are rapidly eroding profits. And the lower the earnings gold stocks as a sector can generate, the lower their stock prices should be as investors refuse to overpay for future profits streams. Thankfully because earnings are one of the most important and widely-followed stock metrics, this idea is easy to investigate.”
Hamilton goes on to state that the long-term average of the broad market P/E ratio is about 14x. This makes gold stocks much cheaper, from a P/E ratio, than the broad market. This comes as quite a surprise (and great opportunity) given that gold stock P/E ratios are often much higher than the rest of the market. And as Hamilton goes on to point out, according to his formula for calculating precise P/E ratios (which includes market caps in the equation), the S&P 500 is trading at 17.8x. This means that a dollar profit in the gold sector costs $12 to buy and a dollar profit on the S&P is going for nearly $18.
Perhaps the most shocking statistic of all from this article is that “Gold-stock P/E ratios today are actually the lowest they’ve been in this entire secular bull! Our latest read at the end of May saw the HUI sport an incredible MCWA P/E ratio of only 12.0x earnings. This is amazingly cheap for gold stocks.” He goes on to state that “Gold miners are actually earning enormous profits now relative to their stock prices. They are value investments today!”
Click here to read Adam Hamilton’s latest report.