Generally speaking, share price doesn't matter -- whether a stock is trading at $8 or $800, it is largely an irrelevant factor when determining the underlying earnings power of a company.
When you buy a stock, you're buying a piece of a company, a company you hope will increase in value over time. Less expensive stocks can allow individual investors to acquire more shares of a given company, but their ownership stake may be less, percentage wise, if the total number of shares outstanding is greater. Still, many investors still find the prospect of cheap stocks alluring. Perhaps it's because they're more volatile, often prone to wild swings.
The same might be said for gold, and by extension, gold stocks. The price of the precious metal has varied wildly over the last five years, surging to near $1900 per ounce before falling back under $1200. For the most part, gold stocks have moved in tandem. Investors interested in low-cost gold stocks have many to choose from. Below are three promising ones that currently trade for less than $10 per share.
A hedge fund favorite
AngloGold Ashanti (NYSE: AU) is the fourth-largest gold miner in the world, and it's currently the largest pure play gold miner whose shares trade for less than $10. In the past, the company has been a favorite pick of hedge fund titan John Paulson. Although it hasn't worked in Paulson's favor (AngloGold Ashanti is down more than 75% over the past five years) it remains an intriguing stock for anyone looking for exposure to gold.
In recent years, AngloGold Ashanti has been hit by declining gold prices and issues with its South African labor force, but the company's performance has been improving in recent months. Earlier in May, it reported a profit for its fiscal first quarter, a positive development for a company that had been losing money. For the full year, it expects the all-in sustaining cost of every ounce of gold it produces to be around $1,000-$1,050, down from around $1,200 in prior years. Like other miners, AngloGold is beholden to the price of gold itself, but with its costs coming down, it offers interesting upside should the price of gold rebound.
A smaller Canadian miner
Unlike AngloGold, Eldorado Gold's (NYSE: EGO) first quarter wasn't profitable. Unfortunately, the company posted a quarterly loss, but it was due to some unique issues. Eldorado took a writedown on some of its iron ore inventory, and had a differed tax adjustment. The fluctuating values of global currencies also played a roll, as its cash deposits in Turkey, Canada, and Brazil lost value. . On an adjusted basis, however, the company was profitable. As a gold miner, there are reasons to like Eldorado, whose shares are currently trading for less than $5.
Eldorado Gold has some of the lowest production costs in the industry. In the first quarter, the company's all-in sustaining costs for each ounce of gold were only $729, and for the full-year, Eldorado expects costs to be under $1,000 per ounce.
Eldorado has about $500 million in cash, or just over 14% of its market cap, and it actually pays a dividend. Admittedly, it's modest -- Eldorado currently yields less than 0.50% -- but increasingly fewer and fewer gold miners offer them.
A large dividend
In fact, among gold stocks trading for less than $10, only 8 still pay a dividend. Sibanye Gold (NYSE: SBGL) offers the greatest -- it currently yields over 5%. Paying a dividend is a core part of Sibanye's management philosophy -- it aims to return roughly one-third of its normalized earnings to shareholders, and the company is profitable.
Like all gold miners, the falling price of gold has taken a toll on Sibanye, and shares are down nearly 30% in the last twelve months. But much of that loss comes on the heels of its most recent earnings report -- an earnings report that was affected by a number of disruptions.
Sibanye's gold production came in below expectations, but management blamed a variety of factors that should be short-term in nature, including a fire at one site and a conveyor failure at another. If the company can turn its execution around, shares could trade higher.
Bonus: a cheaper gold ETF
Investing in a gold mining company offers greater potential upside than gold itself (the spread between mining costs and the price of gold introduces a degree of leverage), but carries additional risks. Not only do you have to worry about the price of gold, but other issues can arise -- unforeseen labor disputes, poor management, or political turmoil can weigh on a stock even if gold prices are rising.
Investors looking to invest directly in the metal could consider a gold-backed ETF. The SPDR Gold Shares (NYSEMKT: GLD) is the most popular one by far, but there are other, less expensive alternatives.
It doesn't trade for less than $10, but it's close. The iShares Gold Trust (NYSEMKT: IAU) trades for just over $11 per share. Investors looking for a cheaper gold ETF could find it a better fit than the relatively expensive GLD.