One of the major beneficiaries of the rally in commodity prices this year has been mining stocks, especially stocks of those companies that mine precious metal. At the start of 2016, equity markets around the world suffered a ripple effect following a meltdown in Chinese equities, which was caused by a deterioration of economic conditions in the country. Then a few weeks ago, the U.K’s decision to leave the European Union created more havoc on markets around the world.
All of these macro developments and their after-effects have led investors to make a beeline for the yellow metal in the past few months and pushed gold prices to their 3-year high. Since South Africa has been one of the dominant gold producers for a long time, many large publicly-listed gold mining companies are based in that country. In this post, we will take a look at the five most popular South African mining stocks among hedge funds that we track as of the end of the first quarter and discuss how these stocks have performed of late.
At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).
#5. DRDGOLD Ltd. (ADR) (NYSE:DRD)
– Hedge Funds with Long Positions (as of March 31): 5
– Aggregate Value of Hedge Funds’ Holdings (as of March 31): $6.17 million
Let’s start with DRDGOLD Ltd. (ADR) (NYSE:DRD), which was held by five hedge funds in our system on March 31, inching up by one quarter-over-quarter. Of much more significance is the fact that the aggregate value of their holdings in the stock swelled by over 200% during the first quarter. Shares of DRDGOLD Ltd. (ADR) (NYSE:DRD) ended the second quarter up by 47.87% and the first-half of the year up by a sterling 268.75%. That was only the start, as shares have now pushed their year-to-date gains to 340% thanks to continued rally in July. The company recently hiked its dividend by 200% to $0.24 per share, which currently translates into an annual dividend yield of 4.54%. On June 12, analysts at JPMorgan Chase & Co. downgraded the stock to ‘Underweight’ from ‘Neutral’, which does not appear to have been the right call at this point in time. Billionaire Jim Simons‘ Renaissance Technologies upped its stake in DRDGOLD by 31% to 1.2 million shares during the first quarter.
#4. Harmony Gold Mining Co. (ADR) (NYSE:HMY)
– Hedge Funds with Long Positions (as of March 31): 8
– Aggregate Value of Hedge Funds’ Holdings (as of March 31): $29.04 million
The number of hedge funds in our system long Harmony Gold Mining Co. (ADR) (NYSE:HMY) increased by one quarter-over-quarter to eight as of March 31, while the aggregate value of their holdings in the stock jumped by almost 100%. Harmony Gold Mining Co. (ADR) (NYSE:HMY)’s stock ended the second quarter with a meager loss of 0.83%. However, thanks to the rally it saw during the first quarter and the gains it has made so far this month, it is currently trading up by 382.26% year-to-date. Earlier this year the company revealed that it is planning to pay off all of its outstanding debt by the end of 2016 and may reinstate its dividend going forward. Several leading analysts and research firms on Wall Street have upgraded Harmony Gold’s stock this month, including analysts at Deutsche Bank, who upgraded it to ‘Buy’ from ‘Hold’ on July 6. Funds that initiated a stake in Harmony Gold during the first quarter included Eric Sprott‘s Sprott Asset Management, which purchased 1.12 million shares.
We’ll check out three more popular South African mining stocks on the next page.