How Much Can Newmont’s Stock Glitter?

by Trefis Team
+10.04%
Upside
68.91
Market
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Trefis
NEM
Newmont Corporation
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Newmont stock (NYSE: NEM) has rallied 42% since late March (vs. about 35% for the S&P 500) to its current level of $59. This was after falling to a low of $42 in late March, as a rapid increase in the number of Covid-19 cases outside China spooked investors, and resulted in heightened fears of an imminent global economic downturn. The stock is currently about 29% above the $46 level it reached in mid-February. Are the gains warranted or are investors getting ahead of themselves? We think that the gains are justified, and believe the stock price is likely to see marginal upside from the current level, as gold prices remain elevated despite fears surrounding the pandemic are put to rest and the economy begins to recover slowly. Our conclusion is based on our detailed comparison of Newmont’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

How Did Newmont’s Stock Fare During 2008 Downturn?

We see Newmont’s stock declined from levels of around $46 in October 2007 (the pre-crisis peak) to roughly $38 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 18% of its value from its approximate pre-crisis peak. This marked a drop that was lower than the broader S&P, which fell by about 51%.

However, Newmont’s stock recovered strongly post the 2008 crisis to about $48 in early 2010 – rising by about 28% between March 2009 and January 2010, as against the S&P which bounced back stronger by about 48% over the same period.

In comparison, Newmont’s stock lost 10% of its value this year between 19th February and 23rd March 2020, and has already recovered 42% since then. The S&P in comparison fell by about 34% and rebounded by about 35%.

Is The Recovery Warranted & Can We Expect Further Gains?

The rally across industries over recent weeks can primarily be attributed to the Fed stimulus which largely quieted investor concerns about the near-term survival of companies. The flattening of Covid cases in the worst hit U.S. and European cities is also giving investors confidence that developed markets have put the worst of the pandemic behind them. The current crisis, in fact, provided a boost to Newmont’s business. Global gold prices have increased from about $1,500/ounce at the beginning of 2020 to almost $1,770/ounce currently due to higher demand. With rising investment in the yellow metal by major central banks and expectations of interest rates heading south, gold prices already saw a sharp rise in 2019. This trend was further boosted by the current Covid-19 crisis. This was reflected in the company’s Q1 2020 results which saw Newmont’s revenues rise by 43%.

Over the coming weeks, we expect subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Investors will likely focus their attention on Q2 and Q3 2020. With the easing of lockdowns the global supply bottlenecks will lessen and are likely to lead to higher shipments. Also, the acquisition of Goldcorp in mid-2019 is likely to help NEM with higher shipments post-Covid. A subdued economic growth outlook is expected to keep gold prices elevated. These trends and expectations of strong performance in 2020 could help Newmont’s stock to see an upside from its current level. As per Newmont’s Valuation, Trefis has a price estimate of $65 per share for NEM’s stock, slightly higher than its current market price.

For further insight into the gold mining space, check how Newmont compares with Freeport-McMoRan and how much can Barrick Gold recover post-covid.

While Newmont’s stock price is likely to see an uptick from its current levels, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

 

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