Shares of Goldcorp also haven’t performed well in 2013, as they declined by nearly 10% since the beginning of the year. The low growth in revenues may have contributed to the decline in the company’s stock. During 2012, the company’s revenues rose by only 1.4% in 2012 – a very similar growth rate as Barrick Gold Corporation (USA) (NYSE:ABX). The operating profitability of Goldcorp was around 39%, which was also close to the profit margin of Barrick. Therefore, Goldcorp might be facing in 2013 similar circumstances, which could result in a decline in revenues and profit margins.
The same goes for other gold producers such as Yamana Gold Inc. (USA) (NYSE:AUY) . The company’s stock also fell by 10% (YTD). Its revenues grew by 7.5% in 2012 compared to 2011. This company also has a profit margin of around 37%. But unlike Barrick, this company is expected to increase its production by nearly 20% to 30% in 2013. So even if the price of gold will fall and the costs will rise, the company will still be able to maintain its growth.
So why consider gold companies?
One of the main advantages of gold companies (but not only) over investing in gold or ETF is that they are able to pay dividend over time. But the dividend yield isn’t high: Goldcorp offers a yield of 1.8%; Barrick Gold Corporation (USA) (NYSE:ABX) offers 2.6% annual yield; Yamana is paying an annual yield of 1.7%. But I think this isn’t enough to consider such an investment with high risk.
For those who still wish to consider having gold in their portfolio, then they might want to stir away from gold producers that aren’t likely to recover in 2013, not even if they will augment their dividend payment. One might consider gold royalty companies such as Royal Gold or investing in gold ETF.
The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.
The article Is This Gold Producer Able to Rally in 2013? originally appeared on Fool.com and is written by Lior Cohen.
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