Gold-mining shares still ‘cheap’ based on historical metrics – VanEck’s Foster – by Allen Sykora (Kitco News – June 18, 2020)

(Kitco News) – Gold-mining stocks remain undervalued based on the statistical norm of share prices to cash flow, and this is occurring at a time when producers are on their best financial footing in recent history, said Joe Foster, portfolio manager of VanEck International Investors Gold Fund (INIVX).

Valuation is one of the factors that Foster focuses on when picking stocks, and the market was “very oversold” when share prices of producers bottomed back in March, he said. Shares have have risen sharply since, yet valuations are still below their long-term averages, Foster said in an interview with Kitco News.

“It looks like a spectacular performance when you go from the bottom of the crash [in mining stocks] to where we are now,” Foster said. “But you have to remember, at the lows in March, stocks were trading at about five times cash flow. They are currently trading around eight times cash flow.”

Meanwhile, he continued, the long-term average is for shares to be 11 times cash flow. And during a strong bull market in gold, shares can get up to 20 times cash flow.

“So across-the-board valuations of these companies are relatively cheap compared to the historic averages,” Foster said.

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