Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.
Gold stocks aren't exactly the first thing that most people think of as an appropriate retirement investment. But with the big rise in gold prices in contrast to tepid performance from the stock market, investors have taken a closer look at gold miners. Goldcorp (NYSE: GG ) is a prime example of a company seeking to profit from gold, giving investors not just capital appreciation potential but also income. But miners have had a tough year as rising costs and lackluster price action have weighed on the industry. Can Goldcorp survive the shakeout among mining stocks? Below, we'll revisit how Goldcorp does on our 10-point scale.
The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.
Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.
When scrutinizing a stock, retirees should look for:
- Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
- Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
- Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
- Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
- Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.
With those factors in mind, let's take a closer look at Goldcorp.
What We Want to See
Pass or Fail?
|Size||Market cap > $10 billion||$37.5 billion||Pass|
|Consistency||Revenue growth > 0% in at least four of five past years||4 years||Pass|
|Free cash flow growth > 0% in at least four of past five years||2 years||Fail|
|Stock stability||Beta < 0.9||0.53||Pass|
|Worst loss in past five years no greater than 20%||(6.6%)||Pass|
|Valuation||Normalized P/E < 18||27.19||Fail|
|Dividends||Current yield > 2%||1.2%||Fail|
|5-year dividend growth > 10%||22.7%||Pass|
|Streak of dividend increases >= 10 years||3 years||Fail|
|Payout ratio < 75%||26.3%||Pass|
|Total score||6 out of 10|
Source: S&P Capital IQ. Total score = number of passes. * 2.5-year growth rate.
Since we looked at Goldcorp last year, the company has kept its six-point score. The stock has also finished near the flat line, having recovered recently from sizable losses.
Goldcorp has long been a respected player in the mining industry. With a reputation for taking advantage of favorable conditions to make strategic acquisitions and other corporate moves, Goldcorp has some analysts expecting further buys with its rich cash balance. Moreover, with the exception of rivals IAMGOLD (NYSE: IAG ) and Eldorado Gold, Goldcorp has one of the cheapest valuations based on global resources in the industry.
But not everything has gone Goldcorp's way. Back in July, the miner cut production estimates on two of its most important mines, with seismic activity disrupting its Red Lake mine in Ontario, Canada, and drought conditions limiting mill throughput at its Penasquito mine. Although streaming companies Royal Gold (Nasdaq: RGLD ) and Silver Wheaton (NYSE: SLW ) will end up absorbing some of the production hit, Goldcorp nevertheless sank to new lows on the news.
One key asset in Goldcorp's hoard is its 41% stake in Primero Mining (NYSE: PPP ) . As Primero begins to realize the full potential of its San Dimas mine, Goldcorp should benefit from Primero's success.
For retirees and other conservative investors, big advances in Goldcorp's dividend provide much-needed income, while shares have remained reasonably stable. That could change in a hurry if gold prices start to slide, but with potential for major price advances as well, retirement investors willing to take a chance could justify adding Goldcorp to their retirement portfolios.
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.
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