Key Points
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Newmont stock rose after an analyst upgraded the stock on valuation grounds despite adjusting the price target lower.
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Gold’s long-term outlook remains strong due to central bank demand.
- 10 stocks we like better than Newmont ›
Shares in gold miner Newmont Corp (NYSE: NEM) rose by as much as 5.4% in early morning trading today. Yes, the price of gold is up slightly as I write, but that’s not the real reason investors feel more optimistic today. The likely catalyst for the stock’s move today is a TD Cowen analyst’s upgrade of the stock from a hold recommendation to a buy, even as the analyst, Steven Green, nudged the price target down to $127 from $129.
TD Cowen upgrades Newmont stock
The stock has been weak recently and is down by a low single-digit percentage on the year. That’s enticing enough to encourage the analyst to recommend the stock on valuation grounds. Evaluating commodity stocks like Newmont is always a difficult endeavor, as it always implies some sort of assumption for the underlying commodity it produces; in this case, gold.
The case for Newmont and gold
However, I do think there’s a strong case for agreeing with the analyst. The weakness in gold prices this year is not surprising, given the rush by investors to invest in the precious metal last year. Simply put, the massive influx of speculative money into gold left it susceptible to a correction, as easy money can flow in and out.
That said, the underlying case for gold remains strong, as global central banks continue to seek ways to diversify out of U.S.-denominated debt and move assets out of U.S. dollar assets, which could be subject to sanctions. They are likely to buy gold on weakness, as in the jewelry market, while demand for gold in technology is relatively stable.
If gold does indeed recover, Newmont is an ideal way to play the theme, given management’s doubling down on gold by divesting non-core assets and focusing on lower-cost production in its core assets. As such, buying on weakness, while acknowledging it could get weaker in the near term, makes sense for long-term gold bulls.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
