Daily Gains Letter

A Good Gold Stock Worthwhile in Any Portfolio

By for Daily Gains Letter | Jan 14, 2013

















DL_Mitchell_8If you’re a gold investor, you’ve got to be disappointed with the commodity lately; gold stocks have really taken it on the chin. Gold is an important component of an equity portfolio, but its non-performance does take its toll.

One gold stock that I think is worth putting on your radar screen now is Barrick Gold Corporation (NYSE/ABX). This large-cap, dividend-paying gold miner is one of the largest and best in the world, but its share price took a big dive in 2012, even though spot gold prices didn’t really go down that much. What’s clear is that gold stocks are now out of favor, and a good new entry point may soon present itself.

The spot price of gold has been in a bull market for over 10 years now, and that’s a long time for any commodity to be moving upward. Gold stocks have also benefited, but it seems that the entire group is in consolidation, or you might say, correction, along with the spot price. Even the best growth story in the mining business won’t do well unless the underlying spot price is moving up commensurately. This makes investing in gold stocks an even tougher investment strategy—you have to get the bet on the commodity and the miner right, all at the same time.

Among smaller gold stocks that you might consider for a growth investment instead of a dividend payer, one standout is Argonaut Gold Inc. (TSX/AR). This is a Canadian gold miner that trades on the Toronto Stock Exchange. The company is on the growth path right now, and should do well over the next couple of years. The stock has held up far better than other gold stocks, and it’s not expensively priced.

For more conservative and income-oriented investors, a company like Barrick Gold would be a better bet than a growth story. Barrick Gold’s dividend yield is currently around 2.4%, one of the higher yields within the group. Barrick Gold is very well-managed, and the reason why I like it is because the stock is down from its highs. It might be just a little too early to consider a position in this company, because the spot price of gold may have more near-term weakness in 2013, but it’s still one to put on the radar screen right now.

A lot of institutional investors play gold, but they move in and out of gold stocks in a pack. When the commodity turns higher, the momentum builds, and if the trend is moderately lasting, they all pile in. The same happens when gold declines from a high, so it makes investing and speculating in gold stocks that much more volatile.

I definitely think there is a role for some gold and gold stocks in an equity portfolio, but it should be a relatively small one. Precious metal investments are always volatile, more so than pipelines and utilities, for example. But gold offers the store of value that weakened currencies don’t, and it is always a safe haven-type of security. There’s room for gold in any portfolio; put Barrick on your watch list now.

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