I’ve written recently about the FANG stocks and another popular group I call MCBM. Both trade at valuations that look extreme relative to their history. There’s another group, though, that I have been watching that appears to be trading at a significant discount to its normal range over the past couple of decades.
This latter group I call BANG (Barrick Gold Corporation (NYSE:ABX), Agnico Eagle Mines Limited (NYSE:AEM), Newmont Mining Corporation (NYSE:NEM) and Goldcorp Inc (NYSE:GG)) and I like the acronym not just because of the allusion to and juxtaposition with FANG but also due to the fact that rising gold prices could make for explosive gains in these stocks if their valuations begin to normalize at all.
The chart below plots the median enterprise value-to-revenues for the four stocks over the past 20 years. The thing that really jumps out at me is that BANG is currently cheaper today than it was in the early 2000’s at the end of the last major gold bear market when the price of the precious metal was fully $1,000 per ounce cheaper than it is today.
Some have argued that these stocks may deserve to trade at lower valuations today because the gold price has lost a third of its value over the past several years hurting profits. However, it looks as if the profitability of these companies is significantly better today than it was at the nadir of the last major bear market for gold roughly 15 years ago.
Furthermore, the median 3-year revenue growth for this group has just turned positive again as it did at the start of the last major bull market for gold and the miners.
All in all, it looks as if Mr. Market is currently pricing in a much more dire situation than the companies actually face at present. In other words, this is what a margin of safety looks like. A normalization of the valuations for this group would yield a 50% gain for the stocks even without any upside in the gold price. And if the precious metal is set to embark on another bull market, as I believe it is, the upside for these stocks could make FANG’s performance over the past few years look tame in comparison.