Tags: Benz | gold | miner | stocks

Morningstar's Benz: Consider Gold-Miner Stocks as Value Play

By    |   Wednesday, 29 October 2014 01:34 PM

It has been a rough two months for gold-miner stocks, with the Market Vectors Gold Miners exchange-traded fund plunging 22 percent during that period.

But that could make the miners' shares attractive for value investors, says Christine Benz, director of personal finance for Morningstar.

"The pickings have been slim — and getting slimmer — for bargain-hunting investors," she writes on Morningstar. "But contrarian-minded sorts may be able to spot a glint of opportunity in an extremely unloved area: gold-mining stocks."

Benz cites the views of financial adviser Bill Bernstein to explain the attraction of gold-miner shares.

"His central assertion is that precious-metals equities add a diversification benefit to investors' portfolios. That's borne out by the data," she writes.

"In addition, Bernstein argues that the timing looks good. Gold stocks went up with other equity assets in 2009 and 2010, but they've been in the dumps ever since. In fact, stocks in the gold-mining industry have posted the worst returns of any industry group over the past three years — worse than even the beleaguered coal industry."

To be sure, given the high volatility of any gold-oriented investment, "investors must have a long time horizon and should limit their position sizes" to perhaps 5 percent of their portfolio, Benz suggests.

"The stocks look fairly inexpensive to Morningstar's equity analyst team right now," she adds. "Of the nine gold-mining stocks with analyst coverage, the average price/fair value is just 0.64, close to the 52-week low. Meanwhile, eight of the nine companies earn 4 stars currently, and one earns 5 stars."

Meanwhile, Russia increased its gold reserves by 37.2 metric tons in September, the most since 1998, lifting its holdings to the highest level in at least 20 years, according to the IMF.

"From the perspective of a sovereign which is concerned about aspects of geopolitical risk, it makes sense that they would have a bias toward physical gold," Brian Lucey, a former economist for the Central Bank of Ireland, tells Bloomberg.

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It has been a rough two months for gold-miner stocks, with the Market Vectors Gold Miners exchange-traded fund plunging 22 percent during that period.
Benz, gold, miner, stocks
328
2014-34-29
Wednesday, 29 October 2014 01:34 PM
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