Why Newmont Corporation Stock Just Dropped
Key Points
Gold prices hit an all-time high yesterday -- then slipped.
Newmont stock is following the price of gold up -- and also down.
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Newmont Corporation (NYSE: NEM) stock tumbled 7.2% through 11:05 a.m. ET Friday, just one day after hitting an all-time high north of $134 per share (intraday) yesterday.
These two facts seem connected.
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Why Newmont stock soared, then dropped
Gold prices have been on a tear this year, leaping to an all-time high of their own this week, racing past the $5,000 mark on Monday, and climbing as high as $5,615 yesterday. Gold prices slipped lower this morning, however -- still above $5,000 at $5,080, but down 5.2% from their peak.
Newmont mines gold. It makes perfect sense that as gold gets more valuable, so too would Newmont stock. Conversely, when gold prices go down... so do the stock prices of gold miners like Newmont.
Is Newmont stock a buy?
But should investors panic about this? I'm not so sure they should. Consider that just this morning, Swiss investment bank UBS raised its price target on Newmont stock by 28%, to $160 per share, and maintained its buy rating on the stock. (And if anyone knows how to value gold, you'd expect it to be the Swiss!)
Fact is, I agree with UBS on this one. Even after tripling in stock price over the past year, Newmont stock still costs less than 20 times earnings. Most analysts agree the company will grow its earnings 58% annually over the next five years.
That's a PEG ratio of 0.34, folks. Newmont stock is cheap. You should probably take UBS's advice and buy it.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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