A Must-Buy Gold Stock: Yamana Gold Inc. (USA) (AUY), Goldcorp Inc. (USA) (GG), IAMGOLD Corporation (USA) (IAG)

The Gold Industry’s Major Players

The Canadian-based gold producer Goldcorp Inc. (USA) (NYSE:GG) engages in gold mining and related activities. It is trading at a forward P/E (1yr) of 10.87x and has a PEG of 1.08. Adding PEG into its dividend yield gives us a PEGY of 0.97. This low PEGY makes Goldcorp Inc. (USA) (NYSE:GG) one of the most undervalued stocks in the gold industry. Just like Yamana, it’s generating healthy earnings on its sales—an operating margin of 41% is a testimony to this. A mean recommendation of 2.2 on the sell side suggests that Goldcorp Inc. (USA) (NYSE:GG) is also a great buy in its industry.

On the other hand, IAMGOLD Corporation (USA) (NYSE:IAG) is trading at a low forward P/E (1yr) of 6.62x, which shows that investors aren’t expecting that much from the company in the coming years—a negative PEG of 1.84 clearly reflects this fact. Though the company is yielding a healthy operating margin of 33% on its sales, it’s slightly less than its top peers like Goldcorp Inc. (USA) (NYSE:GG) and Yamana Gold. A mean recommendation of 2.7 on the sell side shows that it’s an average buy in the gold industry.

Conclusion

As a result of low gold prices and high capital costs, most of the mining companies are now focusing more on increasing their margins, rather than growth. In order to enhance its output, Yamana Gold Inc. (USA) (NYSE:AUY)’s strategy going forward is to build its production base. Yamana’s main catalyst for production would be its mines in Brazil, which are expected to generate substantial cash flows for the company. Furthermore, the company has plans of investing more on internal projects rather than acquiring new projects. The company already has two mines lined-up that will start operating this year, and another three will reach commercial production.

Gold prices have almost bottomed out, making this a perfect scenario to go long on gold stocks. Given the fact that the QE3 program is likely to continue, the long term future of gold prices looks bright. In my previous article, I mentioned why I still remain bullish about gold prices in the long run. Yamana Gold Inc. (USA) (NYSE:AUY) is still one of the best buys in the gold industry, thanks to its great production outlook for the future. The bottom line is that Yamana Gold is still one of the most attractive buys in its industry, making a must buy at this stage.

The article A Must-Buy Gold Stock originally appeared on Fool.com and is written by Waqar Saif.

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