At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
What do you do when one of the market's top stock pickers hops aboard one of the strongest commodity stories in recent memory? Personally, I listen up. And from what I hear, Blue Horseshoe loves Yamana Gold
And why has BMO taken a fancy to Yamana? Excellent question. Problem is, we don't know the answer. You see, while Briefing.com reported the fact of BMO's upgrade yesterday, it left out one important bit of information -- the reason BMO upgraded Yamana. Whether it's due to faulty reporting, or a reticent analyst, not a single major media outlet has any details on the upgrade.
Speak up, BMO!
There are few situations more frustrating to the individual investor than the one we face today: BMO wants us to buy Yamana, yet it won't tell us why. But while we're unable to tell you what BMO thinks, here at CAPS we can at least clue you in to how well it thinks.
Let's go to the tape
And here's the good news for Yamana shareholders: BMO's hip deep in the mining sector, and it's striking gold. Over the past three years, this banker has recommended trades on some 40 separate Metals and Mining companies -- making this sector BMO's second-biggest-after-oil.
And while BMO's not perfect ...
|
Stock |
BMO Says |
CAPS Says |
BMO's Picks Lagging S&P by |
|---|---|---|---|
|
Goldcorp |
Outperform |
** |
35 points |
|
Alcoa |
Underperform |
**** |
31 points |
... it still pretty good:
|
Stock |
BMO Says |
CAPS Says |
BMO's Picks Beating S&P by |
|---|---|---|---|
|
Freeport McMoRan |
Outperform |
**** |
22 points (two picks) |
|
Silver Wheaton |
Outperform |
**** |
28 points (two picks) |
|
Rio Tinto |
Outperform |
***** |
45 points (three picks) |
|
Newmont Mining |
Outperform |
*** |
6 points |
In fact, 59% of BMO's recommendations in the mining sector have gone on to beat the market, helping to lift this analyst into the top 10% of investors tracked on CAPS. (Of course, the bull market in gold hasn't hurt either.) And that's got me to thinking: Sure, BMO has done well by hopping a ride on the gold stagecoach -- but might it have done even better?
Yamana wears combat boots
The more I look at Yamana's financials, the more I think the answer to this question is "yes." You see, at last report, Yamana boasted 19,364,000 Troy ounces of proved and probable, recoverable gold reserves. With gold now fetching $1,056 per ounce, that works out to $20.4 billion in assets -- yet Yamana itself commands an enterprise value of just $9.6 billion. As a very crude calculation, therefore, you can argue that the entire company -- gold reserves, engineers, equipment, the whole shebang -- can currently be purchased for just 46% of the value of Yamana's gold assets alone.
Sound like a bargain? Well, before you grab your pickaxe and go prospecting at the local brokerage, take a moment to consider a few of the other miner-fourty-niners that might strike your fancy. Fellow gold-digger Kinross Gold, for example. This one's valued at $16.3 billion, despite claiming 45,628,000 ounces (or $48.6 billion worth) of gold reserves. Similarly, Newmont Mining possesses 84,960,000 ounces ($90.6 billion) of reserves, yet carries an enterprise value of only $25.3 billion.
So when you consider that Kinross sells for almost precisely 33% of its asset value, and Newmont can be had for a mere 28% of its reserves' worth ... well, Yamana doesn't look like quite the bargain it did initially.
Foolish takeaway
Of course, if all the gold miners are undervalued, I suspect you should do just fine investing in any of 'em. But the question you have to ask yourself is: Why?
If all gold is equally shiny, I see little reason to buy Yamana for "54%-off," when there are discounts of 67% and 82% on offer at Kinross and Newmont. And just as important is the argument for safety. If today's gold rush turns out to be a Fool's Gold expedition ... well, that's all the more reason to hedge your bets.
