Speculation Special: 2 Mining Stocks Under $5 You Could Buy Today

Profitable mining companies with stocks trading under $5, like OceanaGold Corporation (TSX:OGC) and Klondex Mines Ltd. (TSX:KDX) could generate huge returns going forward. Should you speculate on one of them?

| More on:
The Motley Fool

Many investors think that stocks trading under $5 are bargains, but this is not the case by any means. Generally, a stock falls below the $5 level because of a weak financial performance by the company, because it has issued too many of its shares, or because of accounting or legal issues.

One way to find a true bargain is to look for companies that remain profitable and whose stocks trade at inexpensive valuations compared with their industry averages. I have searched the market and found two mining stocks that fit these criteria perfectly, so let’s take a closer look at each companies’ first-quarter earnings results, their stocks’ valuations, and some projected returns to determine if you should consider speculating on one of them today.

1. OceanaGold Corporation

(All figures are in U.S. dollars) 

OceanaGold Corporation (TSX:OGC) is one of the largest producers of gold and copper in New Zealand, the Philippines, El Salvador, and Australia.

In the first quarter of fiscal 2015, its net income decreased 58.5% to $24.47 million, its diluted earnings per share decreased 57.9% to $0.08, and its revenue decreased 24.1% to $129.31 million compared with the year-ago period. These results are far from impressive, but the company remained profitable, which is the primary factor we are looking for.

At today’s levels, OceanaGold’s stock trades at 15.6 times fiscal 2015’s and 2016’s estimated earnings per share of $0.19, which is inexpensive compared with the industry average price-to-earnings multiple of 20.2 and its five-year average multiple of 42.3.

I think the company’s stock could consistently command a fair multiple of at least 20, which would place its shares around $3.80 by the conclusion of fiscal 2016, representing upside of more than 28% from current levels.

2. Klondex Mines Ltd.

Klondex Mines Ltd. (TSX:KDX) is one of the leading producers of gold and silver in Nevada, U.S.A.

In the first quarter of fiscal 2015, it reported a net profit of $10.06 million, or $0.08 per share, compared to a net loss of $2.41 million, or $0.02 per share, in the year-ago period, as its revenue increased 1,698.7% to $47.25 million.

At current levels, Klondex’s stock trades at 13.6 times fiscal 2015’s estimated earnings per share of $0.24 and 9.9 times fiscal 2016’s estimated earnings per share of $0.33, both of which are inexpensive compared with the industry average price-to-earnings multiple of 20.2.

I think the company’s stock could consistently trade at a fair multiple of at least 20, which would place its shares around $4.80 by the conclusion of fiscal 2015 and around $6.60 by the conclusion of fiscal 2016, representing upside of more than 47.2% and 102.5%, respectively, from today’s levels.

Should you speculate on one of these miners today?

OceanaGold and Klondex Mines are two of the most attractive mining stocks trading under $5 in the market today. Foolish investors seeking a speculative investment should take a closer look and consider beginning to scale in to positions in one of them.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »