Tags: Park | bullish | gold | miners

Morningstar’s Park: The Case for Gold Miner Stocks

By    |   Tuesday, 15 May 2012 07:18 AM

Over the past year, gold’s price has gained 4.8 percent, while the price of gold mining shares, as measured by the Market Vectors Gold Miners ETF, has plunged 22.4 percent.

But there are some bullish signs for the gold miners, says Morningstar analyst Joung Park, named by The Wall Street Journal as one of the top analysts in the mining and metals sector.

“We think that the first thing is dividends,” he says in an interview on Morningstar.com.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Miners are generating strong cash flow, thanks to buoyant demand for gold. And that has allowed them to boost their dividends, with some offering a yield of more than 2 percent, Park says.

“The second thing is valuation,” he says. With the price of gold miner stocks lagging so far behind gold itself, the value attributed to the gold these miners hold in the ground is falling far below the price of gold you can buy on the market through ETFs or jewelry.

“So we think that maybe investors will see that valuation disconnect and purchase more mining shares instead of gold,” Park says.

Michael Purves, chief global strategist of Weeden & Co., shares Park’s optimism on the stocks. They have plunged relative to gold in “almost parabolic fashion,” he tells Yahoo.

“Each of those parabolic spikes over the last 20 years has set up an enormous rally of 50 to 90 percent in one, three, or six months.”

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.






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