Market Wrap-up for Nov. 5 - Bargain Hunting in Gold Miners

Market Wrap-up for Nov. 5 – Bargain Hunting in Gold Miners

RSS

Despite a volatile stretch in October, stocks are back sitting near all-time highs, making it difficult to find enticing buying opportunities. While a number of stocks are continually setting new highs, there is one sector that has been battered for quite some time, causing many to look for a bottom in the not-so-distant future. That sector is gold miners, as these companies have had a rough go over the last few years.

Gold Miners Not Shining

While broad equities have been roaring to new heights, gold miners have been plagued by a steep drop in the price of the precious metal over the last few years. With equities performing so well (among other factors), demand for gold has dropped and the hard asset is now sitting near a four-year low, which has translated into tough times for gold mining companies. Here is a quick look at the S&P 500 (represented by SPY) versus gold miners (represented by GDX) over the trailing three years:

SPY vs GDX

Clearly, gold miners have been one of the most hated sectors in the investing world as of late. In fact, a few of the individual miners were among the worst performing dividend stocks last year. However, the drop in these stocks could present an opportunity in an environment where most stocks are not presenting attractive entry points.

Investing in Gold Miners

First off, investors should know that gold miners are risky stocks on their own, especially now that they have had trouble finding momentum. A play on gold miners in the current environment would certainly be considered a contrarian play and should in no way take up a major allocation in your portfolio. Instead, an investment in one of these companies could be thought of as a satellite holding with a high risk/reward potential.

To turn it around, these miners are certainly going to need gold prices to stabilize and start to rise again, a very real possibility in the coming years as inflation is expected to see an uptick. On top of that, any kind of stumble or correction in the broad market can actually help these stocks, as it usually translates to a jump in gold prices. Best of all, because gold miners have been struggling so much, their yields are sitting at enticing levels. Here are a few of the highest yielding gold miners in today’s market:

  • Gold Resource Corp (GORO): 9.94%
  • Harmony Gold Mining (HMY): 6.02%
  • Newmont Mining (NEM): 5.50%
  • AuRico Gold (AUQ): 5.21%
  • Goldcorp (GG): 3.33%

Keep in mind that these yields could drop suddenly, because commodity companies have long been known to cut their payouts at a moment’s notice. But for those who can handle a bit of risk in their portfolio, gold miners certainly present themselves as a potential bargain play in today’s environment. Take a look at our list of gold mining stocks to help give you a better idea for which, if any, of these companies would align with your investment objectives. Alternatively, consider investing in an ETF that tracks gold miners, such as GDX.

Be sure to check us out on Twitter @dividenddotcom.