Don't let it get away!
Keep track of the stocks that matter to you.
Help yourself with the Fool's FREE and easy new watchlist service today.
Though every investor hopes to retire rich, or at least comfortable, it's much easier said than done. In a recent Wells Fargo survey, respondents between the ages of 50-59 reported savings of $29,000 on average. With pensions all but gone, and Social Security targeted for cuts in the future, that tiny nest egg alone won't cut it for most people. To make it grow, you've got to get involved in the stock market. But while getting in the game is easy, choosing the right stocks can be far more difficult.
Making prudent decisions
Generally speaking, I look for four traits in a retirement stock:
- Valuation: Not overpaying for a stock matters even more in retirement, because retirees don't have the long time horizon that younger investors enjoy.
- Dividends: Most retirees need both growth and income, since they'll depend more and more on their portfolio to help with everyday expenses. Companies that pay dividends not only offer immediate income, but have also proven to outperform non-paying dividend companies over long periods of time.
- Growth: Whether they receive dividends or not, everyone wants to see their stocks rise over time. You don't need a high-flying stock poised to shoot to the moon; a company that can grow and outperform the market is hard enough to find, making steady growth highly covetable.
- Low volatility: At the end of the day, most retirees would rather own a sturdy company that lets them sleep well at night than a stock that whips up and down with the market's every gyration.
Although some companies are definitely geared more toward retirees, the current contents of your portfolio will largely dictate what you invest in next. Small, mid, and large caps can all play a role in your investing strategy, so I evaluate all varieties of stocks in this regular series.
How does Newmont Mining stack up?
To check out the valuation of Newmont Mining (NYSE: NEM ) , we need to look beyond its P/E ratio of 12. That may seem cheap, but we don't really know without looking at the ratio in historical context. Over the last five years, Newmont Mining's P/E ratio has averaged 38.3, exceeding its present P/E. This suggests that Newmont Mining could present investors with an excellent opportunity to buy on the cheap right now.
At 1.1%, Newmont Mining's dividend might not seem like a whole lot right now. However, that dividend has room to grow, so I wouldn't discount its importance. Paying a dividend in the first place shows a company's dedication to its shareholders, which is nothing to sneeze at.
Next, we want to ensure that Newmont Mining's stock can keep rising over the next five, 10, or 20 years. A company growing its net income has the best possible chance to increase its share price over time. Though we can't predict the future, we can examine how the company performed in the past. Over the past five years, Newmont Mining has grown its net income by 47.8%. That's pretty significant, considering the last few years' market turmoil. While this doesn't mean that growth will continue, it's a great sign that the company can prosper in the face of difficulty.
One of the best measures of volatility is called beta. It measures how greatly the movement of the overall stock market will affect a particular stock. For instance, a beta of 1.0 signifies that Newmont Mining will move in perfect tandem with the market; a beta of 2.0 means that the stock will move up or down twice as much as the general market. In this particular case, Newmont Mining has a beta of 0.855, which is pretty low. Generally speaking, I like to see a beta below 1.2 for retirees, so Newmont Mining fits the bill.
Let's look at the competition
Maybe you think Newmont Mining passed all the tests, or maybe you just don't feel comfortable with the results. Either way, it's helps to examine how a company stacks up against other competitors in its industry. Here are Newmont Mining's stats compared to three of its closest rivals:
5-Year Net Income CAGR
|ArcelorMittal (NYSE: MT )||18.6||2.1%||(2.5%)||1.4|
|Barrick Gold (NYSE: ABX )||16.7||0.9%||52.2%||0.6|
|Gold Fields (NYSE: GFI )||78.3||1.2%||27.9%||0.4|
Source: Capital IQ, a division of Standard & Poor's.
I can't decide for you whether or not Newmont Mining is the best stock for retirement, but it has passed four of the four tests, which is pretty darn impressive. That score doesn't necessarily make this stock a slam dunk, but its demonstrated ability to reward shareholders might just earn Newmont Mining a place in your portfolio.
Interested in adding any of the companies above to your watchlist? Click below to get the latest commentary and analysis.