Gold miners have delivered impressive earnings growth, leading to attractive valuations following its recent decline. Taylor Dart identifies some of the best opportunities; SSR Mining (NASDAQ:SSRM), New Gold (NYSE:NGD), and Agnico Eagle (NYSE:AEM).Investors anxious for upside in the precious metals complex have not gotten their wish as we head into Q3, with the Gold Miners Index (GDX (NYSE:GDX)) continuing to be very volatile, giving up its gains as easily after each sharp rally. This has made the trade quite frustrating for those overweight the sector this year, especially after watching the S&P-500 (SPY) continue to melt higher, unperturbed by the multi-year high inflation figures. The good news is that this continued turbulence in the sector has soured sentiment, forcing many funds to abandon the sector, and many investors to throw in the towel permanently. This exodus has left valuations across the space at very attractive levels for some names, with many miners enjoying 40% plus margins yet trading at 10% plus earnings yields. In this update we’ll look at a few miners that look like solid bets if this weakness persists:
(Source: TC2000.com)
While cyclical sectors like the gold miners should never command earnings multiples anywhere near non-cyclical groups in the market given the lack of pricing power they have and the volatility in the commodities they sell. However, even if we assume more reduced earnings multiples of 12-15, most of the sector is now on sale, with many names at dirt-cheap valuations. A few of these names are SSR Mining (SSRM) at ~10x earnings, New Gold (NGD) at less than 7x next year’s earnings estimates, and Agnico Eagle (AEM) which would get interesting if its correction continues. Let’s take a closer look at these names below: