In my perusal of gold stocks, only one -- Harmony Gold Mining Co. (NYSE: HMY) -- trades rationally, but that is not enough to justify holding the stock if you believe, as I do, that gold prices are likely to fall.
Even with gold at $1,000 per ounce, HMY trades for a modest 12 times trailing earnings and 15 times forward earnings. For this valuation to hold up, gold prices need to continue their ascent at a fairly significant clip. If gold is truly a hedge against the end of the world scenario and collapse of the dollar, investor expectations should be to protect capital. These gold mining stocks, including Harmony, trade like growth stocks.
Do you see my point?
In a more rational world, a gold mining stock would trade for a single-digit multiple of earnings. That means all gold mining stocks should be sold until they trade at such levels. In some cases, we are talking about a 50% correction to get to that point.
Sell HMY, despite its relatively cheap price. Don't be fooled by that valuation. It too shall plunge if gold prices drop significantly.
Don't miss the complete list of gold stocks to sell.
And for more stocks to buy and sell, check out:
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
11-09-2009 @ 1:53PM
terry said...
according to jamie dlugosch 3m stocks were to take stumble in the last quarter of this year 2009.
I see they are strong in all the last 1/2 of the year and went up 1.22 today??
makes me wonder if he even knows what he's talking about...