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Zacks Investment Ideas Feature Highlights: Gammon Gold, Anglogold Ashanti and Barrick Gold

Zacks Investment Research, Inc., www.zacks.com. (PRNewsFoto/Zacks Investment Research) (PRNewsFoto/ZACKS INVESTMENT RESEARCH)

News provided by

Zacks Investment Research, Inc.

Apr 08, 2011, 09:30 ET

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CHICAGO, April 8, 2011 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Gammon Gold Inc. (NYSE: GRS), Anglogold Ashanti Ltd. (NYSE: AU) and Barrick Gold Corp. (ABX).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

No Bubble Here: Gold Stocks Are Cheap

Everywhere you look, the headlines are saying that gold is a bubble.

The yellow metal hit new record highs this week and has risen every year for the past 10 years.

Yet if you look closer at the numbers, especially during the recent rally, the "bubble" thesis looks a bit more suspect.

What Bubble? Stocks Beating Up on Gold

Over the last month, gold is up just 2.1%. Does that sound like a raging bubble to you?

Looking further out, over the last 6 months, the performance of stocks has crushed that of gold.

Using the Gold ETF, SPDR Gold Trust (GLD), as a comparison as it tracks the physical metal, the GLD was up 7.9% in the prior 6 months while the S&P 500 returned nearly double that, at 14.6%.

How Hot Are the Gold Mining Stocks?

Another indicator of a possible bubble market would be investors pouring into the gold mining stocks and pushing valuations of those stocks higher than the norm.

This is what we saw in the technology bubble as tech stocks traded with sky-high valuations as investors "didn't care" what the earnings (if any) were. Technology stocks traded as high as 50x earnings before busting and coming back down to earth.

Yet if you look at many of the gold companies, they are trading with attractive valuations that don't indicate a "bubble" at all.

P/Es Indicate "Value"

In fact, a quick screen reveals many of the large gold miners trading at, dare I say it, "cheap" valuations with P/Es below 15. Even as an industry, the gold miners are trading with a forward P/E of only 16.8.

What gives? How can there be a bubble yet some of the gold miners are value stocks?

That's because there is NO bubble. But the combination of rising gold prices and cheap mining stocks certainly creates an investing opportunity.

3 Cheap Gold Mining Stocks

You don't have to overpay to invest in the gold miners. These 3 companies are all trading with P/Es under 15 and have rising earnings estimates.

1. Gammon Gold Inc. (NYSE: GRS) is a Canadian-based miner exploring in Mexico. At just a 1.4 billion market cap, it is the smallest of the 3 gold miners listed here. It has been expanding through acquisition as it recently acquired Capital Gold for $420 million in cash and stock. Capital Gold also mines in Mexico.

Shares have been hot, spiking 41% in the last 6 months, well ahead of the GLD's return over that period. Still, with a forward P/E of just 11 and a price-to-book ratio of 2.1, Gammon Gold is squarely within the value territory.

Earnings estimates are also rising, with the Zacks Consensus up 20 cents to 89 cents in the last 3 months. Gammon is a Zacks #3 Rank (hold) stock.

2. Anglogold Ashanti Ltd. (NYSE: AU) is a South African metals giant with exploration around the world. This Zacks #1 Rank (strong buy) is expected to grow earnings by 82% in 2011. 2011 Zacks Consensus Estimates have risen to $3.87 from $3.51 in the prior 3 months. Anglogold unwound its hedges in 2010 so it is now completely unhedged to gold prices.

Shares are trading at just 13x forward estimates and shareholders also are rewarded with a dividend yielding 0.5%.

Over the last 6 months, shares have under performed compared to the GLD, returning just 3.7%.

3. Barrick Gold Corp. (ABX) is a large Canadian miner with operations at 25 mines around the world. The 2011 Zacks Consensus Estimate has jumped to $4.25 from $3.88 in the last 90 days. That is earnings growth of 28% over 2010.

The valuations are attractive with a forward P/E of just 12.7x. This Zacks #3 Rank (hold) also has a price-to-book ratio of 2.6, which is considered "value" as it's under 3.0.

Shares have returned 10.5% over the past 6 months, just outpacing the GLD over the same period. It also pays a higher dividend than the industry, with a yield of 1.0%. The industry averages 0.8%.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Len Zacks. The company continually processes stock reports issued by 3,000 analysts from 150 brokerage firms. It monitors more than 200,000 earnings estimates, looking for changes.

Then when changes are discovered, they're applied to help assign more than 4,400 stocks into five Zacks Rank categories: #1 Strong Buy, #2 Buy, #3 Hold, #4 Sell, and #5 Strong Sell. This proprietary stock picking system; the Zacks Rank, continues to outperform the market by nearly a 3 to 1 margin.  The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter Profit from the Pros. In short, it's your steady flow of profitable ideas GUARANTEED to be worth your time. Get your free subscription to Profit from the Pros

Follow us on Twitter: http://twitter.com/ZacksResearch
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YouTube Channel: http://www.youtube.com/user/ZacksInvestmentNews

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
[email protected]
http://www.zacks.com

SOURCE Zacks Investment Research, Inc.

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