IAMGOLD Corporation (USA) (IAG), Barrick Gold Corporation (USA) (ABX): Is it Wise to Invest in the Business of Bling?

It does have pretty astounding gross margins, but as we all know gross profits are not what flow into investors’ pockets. Dominion’s average net profit margin, over the past five years, has been 3%.

What’s more, that ultra low price to earnings ratio is incredibly misleading. The ultra high net income Dominion recorded this past quarter was by way of a one time occurrence. It sold its luxury brands division for $497.6 million. Net income from continuing operations was a measly $2.26 million. If you factor out that one time, super boost to net income, the price to earnings ratio shoots up to 108.7. Yikes!

Foolish final take

Investing in assets like gold or diamonds, or the companies that produce them is much riskier than investing in a business or product that actually makes something. The reasons for this are obvious. The world isn’t going to stop consuming pharmaceutical products, oil, or Coke.

That being said we have two companies here in the business of bling.  One of them, Dominion Diamond, has demonstrated little profit generating power. Even though it’s selling at a bit of a discount to book and has taken steps to strengthen its position in the industry, you should stay away.

On the other hand, IAMGOLD seems fairly attractive right now as it sells for less than half of its tangible book value. Normalized net income, (which factors out special charges), has been well in the black during each of the past 4 years. That yield also looks pretty scrumptious.  Perhaps it’s time you take a look at this embattled gold miner.

Fool blogger Ryan Palmer has no position in any of the stocks mentioned. The Motley Fool does not recommend or own any of the stocks mentioned.

The article Is it Wise to Invest in the Business of Bling? originally appeared on Fool.com and is written by Ryan Palmer.

Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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