Liquid Gold

More Room to Run for Goldcorp

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Investors, stock gains are all about earnings and Goldcorp has a lock on them for a while. Let's examine some of the reasons why this stock will perform well over the long term. By long term I'm talking about the next six to forty months.

Goldcorp is a member of the basic materials sector. The 52 week stock price range is between 21.00 and 46.30. At this writing Goldcorp is about ten dollars a share below its 52 week high. This is the slow quarter for gold companies and that makes it a buying opportunity for you, the investor. Demand from Asia picks up in the third and fourth quarters as buyers place their orders for wedding season.

There are 708 million shares outstanding with 55% of them held by institutions. Management is repurchasing stock.

Book value (18.17) is bullish. Book value reflects the value at which assets are carried on the balance sheet.

Relative performance of stocks versus bonds is a favorable influence for Goldcorp. When the total return for stocks has outperformed bonds, that makes a bullish case for Goldcorp.

The long-term debt/capital ratio is 7.16%. This reflects well on the company's financial stability. The average ratio for gold companies is 9.5%.

2008 earnings were higher than expected and 2009 earnings projections are 25% higher yet. Look at the current price of gold and realize that Goldcorp's cost of removing the metal from the ground is around 200 dollars per ounce. There's a huge percentage between the production cost and the sales price. If gold goes up higher in price, then Goldcorp's profits will also rise even higher.

Finally examine your personal beliefs about inflation. Gold has always been a hedge in that area. If you have noticed higher prices in your life, methinks you might consider purchasing a little insurance to tide you over. Think about the financial debt that the USA has accumulated, the credit problems on Wall Street, and the rising price of crude oil. Know that the war in Iraq is a huge and continuing expense.

If the current crop of politicians remain in power, it will be more of the same. If we elect to change horses and try to balance the budget, think about rising interest rates and inflation until things stabilize. It won't be a wand that can be waived overnight.

It took years for the last gold runup to go from 200 dollars per ounce to over 800 dollars per ounce. When Paul Volker finally got inflation under control by raising interest rates, I was getting 15% interest on my certificates of deposit at the bank. Personally I'm putting my money where my mouth is. I feel so strongly about the upcoming inflationary environment that I've got over ten per cent of my total assets in the shiny stuff and the companies that mine it. A large portion of my funds are in Goldcorp.

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Taking a Stroll Down Memory Lane

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This week our government announced that inflation is very tame and only up .2%. The market cheered and stocks rallied. The stimulus checks are in the mail and the consumer is spending once again. Why some analysts are even recommending consumer discretionary stocks. Joy is beginning to return to Wall Street.

But wait all you hopeful investors sitting on the sidelines waiting to buy into stocks as soon as a full recovery hits. Come take a quick stroll with me back into the seventies. Remember the Vietnam War and all the angst the country was going through during this period? How about gas lines? No sugar or other items out of stock on the grocery shelves? And then there was inflation. Up ten per cent one year and fifteen percent another. Life became unaffordable--fast.

Some of the same government officials who are in the government now were also running the government back then. Do some history research into the Nixon administration and you'll see some of the same cast of characters that are making decisions today. They laid the groundwork for the problems that exploded during the Carter administration and those are the same problems that our next president will be facing in the next year.

Gold is up over 300% in this decade. I'm wondering how much higher it will rise in the next decade. Oil is in the same situation along with most metals, agriculture and other commodities in general. There is a finite supply of resources and a huge demand for most of them. It is not a condition that will go away in a month or a year or two. It may take a decade or longer. Buy oil, buy gold, buy natural gas and companies that mine, drill, explore, or produce these commodities. It is the only way you can keep up with the raging inflation that we are on track to develop.

Liquidity is rampant. The world needs to re-flate and it will do so in the form of gold. Participate or you will be left behind. And, yes, one day gold will drop but interest rates may be at 15% or mortgages at 11% or some other gosh awfully high number. When inflation gets up there, then it's time to sell your gold, oil, and other commodities because the economy will be on the verge of breaking. I remember because I was paying attention during the seventies.

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