Will Newmont’s Stock Underperform The Broader Market Post Coronavirus?

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NEM: Newmont Mining logo
NEM
Newmont Mining

Newmont Corporation’s (NYSE: NEM) stock could underperform the S&P 500 index post coronavirus and oil price war crisis, going by trends seen during the 2008 slowdown, where it fell 8.5% from the approximate pre-crisis peak in 2008, and recovered 15% by early 2010. The decline in Newmont’s stock and recovery was lower than that of the S&P 500.

On Monday, March 9, the stock markets saw their biggest sell off since the 2008 crisis, with the decline continuing throughout the week. There were two distinct trends driving the sell-off. Firstly, the increasing number of coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production. Newmont’s stock fell 15% between 8th March 2020 and 12th March 2020, but is down only by 1% since early February, considering the impact that the outbreak and a broader economic slowdown has increased the value of gold as a safe haven for investment.

The company has been in a strong position since its acquisition of Goldcorp and Nevada joint venture with Barrick Gold in 2019, which is expected to lead to higher production and shipments at a lower cost per unit. Additionally, the rise in gold prices with the spread of coronavirus bodes well for the gold mining giant. During the 2008 economic slowdown the company’s stock was down as prices of gold dropped on account of banks selling the metal to overcome the liquidity crunch. However, with no major liquidity problem in sight currently, global gold prices are on an upswing, which has led to rise in the company’s stock price even when the market is down. Thus, when the market rebounds post the coronavirus crisis, NEM’s stock will not have much upside (with it already being at an elevated level), with the potential increase in stock price being much lower than the increase in the broader market. Therefore, we believe that it’s likely that Newmont’s stock could potentially underperform the market as the crisis winds down.

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In this analysis, we take a look at how the company’s stock reacted to the economic crisis of 2008 and compare its performance with the S&P 500. View our complete dashboard analysis on How Did Newmont Corporation Stock Fare Compared With S&P 500?

Newmont Stock versus S&P 500 Over 2020 Coronavirus/Oil Price War Crisis

  • Newmont’s stock declined by about 15% between 8th March and 12th March 2020, however the stock is down only by about 1% since February 1, after the WHO declared a global health emergency.
  • The S&P 500 declined by 17% between 8th March and 12th March 2020, and has fallen by 25% since February 1, after the global health emergency was declared by the WHO.

Newmont versus the S&P 500 During 2007-08 Financial Crisis

  • NEM stock declined from levels of around $37 in October 2007 (the pre-crisis peak) to levels of around $34 in March 2009 (as the markets bottomed out) and recovered to levels of about $39 in early 2010.
  • Through the crisis, NEM stock declined by as much as 8.5% from its approximate pre-crisis peak. This marked a much lower decline than the S&P which fell by as much as 51%.
  • However, the stock recovered strongly, rising by 15% between March 2009 and January 2010. In comparison, the S&P rose by about 48% over the same period.

Conclusion

  • While Newmont’s stock has increased due to the Coronavirus/Oil Price War crisis, the stock was down during the 2008 slowdown, as the banks were selling gold in the market to tide over their liquidity issues.
  • With no major liquidity problem engulfing the banking system currently, it’s likely that NEM’s stock could remain elevated and potentially underperform the broader market as the crisis winds down.

 

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