Harmony Gold Mining Co. Ltd. (HMY, Financial) is the New York Stock Exchange mining company that looks like a value stock these days. With price-to-earnings ratios significantly lower than the market as a whole and now trading around book value, that fits the mold. The South African miner pays a reasonable dividend and earns money with little debt. If you are a long term investor, the monthly price chart shows a steady uptrend despite short term fluctuations.
Let’s start with the price-earnings ratio. This metric is flawed and on its own insufficient for making investment decisions, but it is arguably the best starting point for the value journey. Harmony’s multiple is well below 10. The S&P 500 price-earnings ratio stands at 46, one of the highest levels in its history. This is mainly due to the effect of the big tech companies that make up the index with their unusually high multiples. Let’s compare Harmony Gold to the biggest company in the same industry: Newmont Corp. (NEM, Financial) the price-earnings ratio is 21.5. Harmony’s forward price-to-earnings ratio is even lower at 8.6, reflecting analysts’ (generally mistaken) opinion of future earnings.
Book value is another metric that on its own would be insufficient, but when combined with other key factors, smart money usually points in the right direction. Basically – although it can be derived precisely in different ways – the “book” is what you get when you simply subtract all the liabilities from the total value of the assets. Then it’s divided by the number of shares outstanding. Harmony is over there at 1.10. The book for Newmont is at 2:20 am. The other large gold mining companies also have higher book values. Barrick Gold Company (GOLD, Financial), which Warren Buffett (Trades, Portfolio) and his team bought and then sold last year, is one pound at 1.59. Franco-Nevada Society (FNV, financial) has a book value of 5.11. Wheaton Precious Metals Corp. (WPM, Financial) is 3.45. Put simply, compared to other big stocks in the same industry, it’s clear that Harmony Gold is the cheapest by this measure.
The mining company pays a dividend yield of 2%. This compares favorably with the meager 1.35% now offered to buyers of 10-year US Treasuries. Obviously, owning a stock carries more risk than a government bond. It’s probably worth noting here that Harmony’s earnings per share are up 60% this year. Five-year earnings per share is 30% positive. The company’s long-term debt is significantly less than equity, the sort of thing that would have made “The Intelligent Investor” author Benjamin Graham smile when he was researching stocks.
Stocks like this can be buyout candidates for large companies looking to expand. Based on the type of value profile presented by Harmony, it will likely show up on the screens of competitors, not to mention institutional investment firms that follow the industry in search of potential candidates.
The biggest negative potential for a stock like Harmony Gold: a sudden and dramatic rise in interest rates that dampens inflation expectations. This would likely affect the price of the metal itself and that of all precious metal stocks. On the flip side, if inflation rose at a higher rate than expected and outstripped the Federal Reserve’s ability to adjust quickly, it could benefit gold mining stocks like Harmony.
From a long-term price chart analysis perspective (below), Harmony Gold has been in an uptrend from the late 2015 low of 50 cents per share. That’s right, 50 cents. As of this writing, it hits $ 4.11 per share after peaking at $ 7.50 in mid-2020. You can see from the monthly chart that the stock price is now well above the Ichimoku Cloud (a mix of moving averages indicating a basic trend) after staying below 2012 to 2019 – a seven-year period. . Above rather than below is a desirable quality for investors who are long in general.
Statistics courtesy of FinViz.com.
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