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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Newmont Mining

March 20th 2013 Newmont Mining
NYSE Symbol: NEM
Industry: Gold Miner
Price as of 3/20: $40.38

Fear the bond market. The 30 year bull market in bonds will be coming to an end very soon, possibly this year. The million dollar question is what to do about it. A large number of bond mutual funds will get slaughtered over the coming years just as the baby boomers are set to retire. Imagine retiring in 1999 with your whole portfolio in Internet stocks. The same problem to a lesser extent is about to happen to bond investors making the income or bond allocation of any portfolio trickier. Many investors are turning to blue chip dividend paying stocks as an alternative to bonds due to their better yields, good growth prospects, and historic hedge against inflation. Inflation going forward could become a big issue. So what is an investor to due? To protect a portfolio against inflation and rising rates investors are looking to Inflation protected bonds or TIPS, floating rate bonds or funds, high yield bonds to a degree except for the junk bond ETF, JNK. Mathematically, JNK has nowhere to go but down. REITS, Muni, Mortgage Back Securities, MLPS, Emerging market debt are other areas to look for yield, but if inflation becomes a problem, one sector that should start to outperform are commodities in particular, Gold. From 2009 through 2011, gold went on a tear. In the last year, gold has moved sideways remaining in a trading range. Gold will break out of this range once again and there is a good chance it will be to the upside. With the market running up as much as it has, gold looks like a good value. If an investor wants to own pure gold the ETF, GLD or PHYS will do the trick, but there is no dividend with pure gold plays. This week we'll highlight a gold related stock with a 4% dividend. The stock of the week is Newmont Mining.
Newmont Mining (NEM) is one of the world's largest gold miners with a market capitalization of nearly $20 billion. The company provides some geographic diversification with assets on every continent (100 million ounces in total resources) except for Europe. If one wants to gamble on gold mines in Africa without the risk of losing a substantial portion of one's assets than Newmont is a good option. Newmont also provides some diversification with its' copper mining operations.
On February 21, 2013, Newmont reported net income from continuing operations of $1.9B or $3.80 per basic share ($3.78 per share on a fully diluted basis) in 2012, compared with $0.5B, or $1.02 per share in 2011. The company had increased quarterly dividend to $0.425 per share. President & CEO Gary Goldberg made comments indicating he was pleased to return the highest dividends in the gold industry on a per share basis in 2012. Newmont will maintain this competitive advantage by focusing on reducing its' total cost of production and progressing only the most promising opportunities in the portfolio which include the Akyem project in Ghana, which will begin production later this year, and advancing the Phase 6 stripping campaign to deliver the next tranche of production from Batu Hijau.
Besides being a good hedge for portfolios, Newmont matches up well with competitors and the S&P 500. Newmont has a higher operating margin of 32.5% and net margin of $18.3% (vs. the industry averages of 27.9% and 15.4%), a stronger ROE of 13.6 (vs. the industry average of 7.1), a lower P/E of 10.6 and P/S of 2.0 (vs. the industry average of 31.3 and 2.8), a lower Forward P/E of 8.0 (vs. the S&P 500's average of 13.9), and offers an annual dividend yield of 4.21%. Newmont also trades for less than 2 times sales and 1.4 times book value of $27.4 a share. The mining stocks are certainly out of favor, but rising interest rates and inflation are on the horizon. When it gets here, commodities will see new money inflows and Newmont Mining is well positioned to capture investors' interest.