I've written about large-cap gold miners like Newmont Mining
(NEM - Free Report
) and Barrick Gold ABX
many times over the years for the Bear of the Day feature as both the yellow metal and its miners are stuck in long-term downtrends.
While Barrick has rallied 34% recently, after hitting 2 1/2 year lows near $9.50, following its $18 billion merger with Randgold (GOLD - Free Report
) , Newmont Mining has only rallied about 11% as gold finds footing back above $1200.
The reason for the weakness is the same as why the stock is a Zacks #5 Rank Strong Sell: persistent downward EPS estimate revisions.
The Zacks proprietary Price & Consensus chart tells the tale of a stock levered to the price of gold and it persistent bear market...
What you see is EPS on the left-hand scale with each colored line representing the changes in annual estimates over time.
The right hand scale is the stock price, showing a steady decline as an earnings revival was projected but never really showed up the past two years.
Full-year 2018 EPS is expected to show a 22% decline from last year's $1.46 in profits.
The top line isn't much better with this year's expected $7.24 billion revenue haul posting as a 1.5% decline over last year.
The Monetary Myth of the Barbarous Relic
The cost of producing an ounce of gold is over $800 for the majority of miners. And one element besides the high cost of production that always hurts the miners is past hedging.
If a miner has obligations via futures, options, or OTC forward contracts to sell gold at say $1300, $1200, or even $1100, then rising spot prices don't have the direct margin leverage one would think.
And I remain bearish on gold, believing nothing in monetary policy or the inflation outlook will much help it get back to $1500 and above.
Last October I wrote a special report for Zacks Confidential titled The Monetary Myth of Gold
where I explained why the barbarous relic was soon doomed in the high-tech age of fiat currencies, digital finance, and artificial intelligence.
That report has my detailed thesis on all the dynamics for gold, including the dollar, inflation, and the relativity of currency fluctuations in a global economy. You can email Ultimate@Zacks.com to request a copy.
I even suggested that cryptocurrencies like Bitcoin were proving the digital era would offer more important economic innovations to extract than anything we could dig from the ground.
Newmont Mining may indeed be worth something near $17 billion but I wouldn't pay that now for cash flow that is headed the wrong direction, and could be for a while as long as gold remains in its bear market.
Disclosure: I own shares of NVDA and ALGN for Zacks TAZR Trader and shares of EW for Zacks Healthcare Innovators.
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