Kinross Gold Corporation: A Cheap Price Doesn’t Imply Value

If you bought Kinross Gold Corporation (TSX:K)(NYSE:KGC) at $26 back in 2008, it’s been a horrible investment. Should you buy it now at about $2.60?

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We’re all in the stock market intending to make money. However, with news and emotions causing erratic price movements, we sometimes forget that there are real people behind these businesses and that how well a stock does depends on its earnings.

A cheap price doesn’t imply value

Investors may be attracted to the cheap price of Kinross Gold Corporation (TSX:K)(NYSE:KGC). It costs only $2.60 per share, but is it really cheap? You might think that it is because it has fallen from 2008’s high of $26, a 90% drop. However, its earnings per share fell from 78 cents in 2011 to 13 cents in 2014, an 83% drop.

Kinross Gold is not a good business to own. Its earnings have fallen for four years in a row, including this year.

Look for consistent earnings for consistent dividends

If you’re looking for dividends, Kinross Gold is an even worse investment. In mid-2013 it eliminated its dividend and hasn’t reinstated it yet.

Investors shouldn’t buy gold miners for their dividends. Their business performance is highly dependent on the prices of precious metals. Falling precious metal prices will cause its share price to fall. Lower earnings mean a falling stock price and slashed dividends.

If you’re looking for consistent dividends, look for consistent earnings first.

How should you invest in Kinross Gold?

Kinross Gold may be a good turnaround opportunity at some point, but it looks like it has further downside because its 2015 earnings are expected to fall further from 2014. Further, the gold miner’s S&P credit rating is only BBB-, which is pretty weak.

If you really must buy its shares, here are several ways investors can play Kinross Gold:

  • You could dollar-cost average in and wait for the ultimate turnaround when commodity prices pick up again.
  • Wait for Kinross Gold to post positive earnings before buying. This way, you’ll likely lose the first leg up, but at least you won’t be stuck in a losing business for an extended period of time.
  • Look at Kinross Gold’s technical chart and trade on the ups and downs. By the way, I wouldn’t call that investing, but trading.


I like to buy businesses for the long term. There are so many good businesses out there. Do you really need to risk your hard-earned money with Kinross Gold? After all, you’re buying a piece of the business when you buy shares in a stock.

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 Kay Ng has no position in any stocks mentioned.

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