Bear of the Day: Randgold (GOLD)


April 24, 2013 |

Gold miners have had a rough ride in the recent months due to the slide in gold prices. In fact, gold miners have been hit more by the precious metal’s slide than the metal itself.

Further, sharp downward estimates revisions have resulted in a cloudy near-term outlook for this Zacks Rank # 5 (Strong Sell) stock.

About the Company

Randgold Resources is an African focused gold mining and exploration company, with its stock listed on the NASDAQ and the London stock exchange.

Downwards Revisions

Due to disappointing outlook for gold miners, quarterly and annual estimates have been revised sharply downwards in recent weeks.

Zacks consensus estimate for the current quarter now stands at $1.06 per share versus $1.61 per share, 60 days ago, while the full-year consensus estimate is $5.24 per share now, down from $6.10 per share.

GOLD has delivered negative earnings surprises in three out of the last four quarters.

Gold Miners versus the Metal

While gold has rebounded slightly from its lowest level in recent months, gold miners still seem to be struggling.  GOLD is down about 28% year-to-date, while the most popular Gold ETF (GLD) is down 15% year-to-date.

Gold miners have actually been underperforming the bullion, for the last more than 10 years and more so, since 2010. While GLD is up 53% in the past five years, Gold Miners ETF GDX is down 39% during the same period.

With rising costs, falling production and increased production issues, we do not expect this trend to reverse anytime soon.

The Bottom Line

GOLD is currently Zacks Rank # 5 (Strong Sell) stock and it also has a longer-term recommendation of “Underperform”.  Further, Zacks Industry Rank of 252 out of 265 indicates more weakness to come.

Given above reasons, we would advise the investors to stay away from this stock for the time being.

Better Play

Investors hoping for a turnaround in gold prices and looking for exposure to the metal can consider physically based gold ETFs like SPDR Gold Shares (GLD) or iShares Gold Trust (IAU); both are currently ranked #2 (Buy) by Zacks.

We believe that gold should continue to be a small part of investors’ portfolio due to its lower correlation with other asset classes and inflation hedging ability. At current levels, the metal looks attractive for longer-term investment.

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