Now that the second half of 2011 has begun, investors are asking what sectors to look at. Here’s a case for looking for looking at two of them: gold miners and U.S. auto manufacturers.
Gold has done well so far this year, beginning 2011 at $1424.20 an ounce and now topping $1600, an 11.65% rise. Shares of two of the biggest players, Barrick Gold (ABX) and Newmont Mining (NEM), have respectively lost 10.4% and 7.23% of their value since their 2011 opening, while another big hitter – Goldcorp (GG) – has outperformed, gaining 18.68%.
This inconsistency indicates that value opportunities are peppered in the sector. Moreover, factors I anticipate will keep the price firm in the second half of 2011, like negotiations in Washington for the 2013 federal budget and buying for the traditional end-of-year wedding season in India, have not even kicked in yet (see my February opinion here). Concededly, gold miners may be more of a short to medium term opportunity as breakthroughs in the various regional sovereign debt issues and reduced gold demand after the wedding season may soften metal prices, so if gains materialize investors may want to consider taking profits.
U.S. Auto Manufacturers
Ford’s (F) shares have lost 23% of their value since the beginning of the year (from $17.02 to $13.09) while the S&P 500 has risen 4.62%. Meanwhile, GM’s (GM) stock is currently languishing at $29.76, below what the shares sold for in GM’s initial public offering (IPO) last November.
Both companies are affected by fears of a “double-dip” U.S. recession crimping U.S. consumer demand, though other factors weighing on the shares vary. Ford has been experiencing some setbacks in conjunction with their improved quality effort that may be a temporary by-product of adding ambitious new electronic features. Profit taking following the company’s meteoric recovery may also be holding the stock back for now. Meanwhile, GM has been experiencing excess truck inventories that scare investors because they remind people of the bloated dealer stocks that drove the company to bankruptcy. But the new GM’s place in the industry is already qualitatively different than the GM that went under, with the new Chevy Cruze apparently outselling imports (see my recent opinion on GM, here). GM is a longer term prospect than Ford because it will take GM a few years to revamp its truck line for a more value/green conscious customer base that prefers high-mileage vehicles. And Ford – which never declared bankruptcy – got a head start in its turnaround. But both companies offer the prospect of sustained value.
Some gold mining stocks offer the chance to buy into the red-hot precious metals sector with less risk than physical gold or assets directly linked to it that have already appreciated to record levels. There are some risks that gold will soften by 2012. But because gold is a hedge against the kind of risks that abound today, especially diminishing confidence in major paper currencies, it’s reasonable to own some percentage of gold related assets. Investors should be prepared to keep their eyes peeled for prices too high to be sustained and trim holdings.
U.S. auto manufacturers offer a value opportunity for a long-term investment. This sector is arguably more suited for investors who want to buy and hold without checking their portfolios too often in the hope that the auto companies will succeed in building value over several years.
Disclaimer: The information provided in this post does not constitute professional investment advice, and should only be used in consonance with all available information, including the opinion of a professional adviser, to make an investment decision.
Disclosure: The author is long Barrick Gold (ABX) and Ford (F) as of the original publication of this post. The author does not hold a securities position in Newmont Mining (NEM), Goldcorp (GG), or General Motors (GM). This disclosure includes holdings of immediate family members.