20080107-CIBC World Markets Inc.-An Earnings Driven Year
Gold Companies Should Finally Reap The Benefits
Of $1,000/oz. Gold
Notwithstanding an expectation of a gold price correction in the near term,
we forecast $1,000/oz. gold for 2009 and derive our price targets off this
figure. Unlike the spike in 1980 when gold only traded above $700/oz. for 8
days, we have already exceeded this figure tenfold in the current cycle.
Results from Q4 indicate earnings growth of 39% over Q3 results.
Annualized Q4 earnings have an average P/E of 36x for the group, but at
our 2008 forecast of $875/oz. gold, the P/E drops to 22x. Improving
valuations under the most basic of metrics is likely to attract new investors.
We are introducing a number of new comparative metrics for gold shares.
Growth versus leverage ratios, market cap weighted earnings ratios, and
beta versus calculated leverage are among the new elements for
comparison. Traditional metrics may show different results.
Our top picks for 2008 include KGC (upgraded to SO from SP as of 1/7),
CG, EGO and HRG. On a lower risk-reward ratio, we recommend AEM, AUY
(upgraded to SO from SP as of 1/7), GG and ABX. Recent strength in less
risky companies points to investors shunning valuation over peace of mind.
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