Newmont Mining Corp. (NYSE: NEM) just completed is $2+ billion acquisition of Fronteer Gold Inc. The company may not have the absolute lowest P/E ratio and it may not have the absolute lowest cost of production per ounce of every gold miner, but it has enough diversity at lower production costs and so much room for profits that it is the single largest dividend in the gold sector. Its target dividend of $1.00 p
er year is based upon the current price of gold and it gets close to 2% in yield. That yield is unheard for a gold miner. Thomson Reuters sees revenues north of $10 billion for this year and next, and if gold remains here then there is significant upside room for earnings and revenues surprises.
The stock trades at about 13.5-times a blended 2011-2012 earnings model. It is also able to commit to a higher dividend if it chooses down the road and it trades at about two-times its real book value. With shares just under $58.00, its 52-week range is $50.05 to $65.50. After it raised production outlook and dividend, shares may have a performance premium in the last week but Newmont offers value, income, and growth that caters to most investors today. Shares have lagged behind the Market Vectors Gold Miners ETF (NYSE: GDX) for the lest 3 months and 6 months and it almost seems as though the run in silver has taken away from much of the interest in gold. Analysts also have a price target north of $73.00, implying more than 25% upside even on the back of a solid performance the week before.
Chevron Corporation (NYSE: CVX) has some mix of momentum in this value call against Exxon Mobil (NYSE: XOM) and ConocoPhillips (NYSE: COP). This is not as clear of a winner in value screening because if you ask three portfolio managers which of the big-three US integrated players offers the best value then you’ll get three different answers. It is not the cheapest on every metric that there is, but it is also never the most expensive of the three integrated oil players. Because analysts have no real long-term forecasting success in oil earnings, we only used 2011 expectations as we are at multi-year highs in oil. We also admit right up front that the stock has been hitting new highs, so much of the ‘value’ has already been taken by prior investors.
At $109.66, the 52-week trading range is $66.83 to $109.94 and its market cap is $220 billion. This 52-week high is actually also an all-time high. Chevron trades at only about 9.3-times the 2011 estimate of $11.78 from Thomson Reuters. It also trades at about 2.2-times tangible book value and investors have been treating it as the favorite of late. The dividend is currently in the middle of the integrateds at 2.6%, but that has been static for what has been four quarters in a row and we think it will rise ahead even further.
Having the term “value” does not keep losses from happening. Commodities move in directions and the underlying stocks behind each often follow the commodity trend more than real value trends. It is the nature of the beast but we wanted to find some which have lower values compared to peers.
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JON C. OGG
