Is Newmont Mining Stock a Good Buy Right Now?

Shares of Newmont Mining are down almost 60% from all-time highs, making the gold stock a top choice for value investors.

| More on:
Super sized rock trucks take a load of platinum rich rock into the crusher.

Source: Getty Images

Gold prices touched an all-time high of US$2,135 per ounce last year, rising 13% in 2023. There is a good chance for the precious metal to soar higher in the next 12 months due to the possibility of interest rate cuts, geopolitical tensions, and an uncertain macroeconomy.

Historically, gold has been viewed as a store of value and a hedge against inflation, offering investors an opportunity to diversify their portfolios. One way to gain exposure to gold is by investing in blue-chip mining stocks such as Newmont Mining (TSX:NGT).

Valued at $52 billion by market cap, Newmont is among the largest mining companies globally. While gold prices have gained pace in recent months, Newmont Mining stock is down 26.5% in the last year, trailing the broader markets by a wide margin. However, the pullback has increased the TSX stock’s dividend yield to 4.8%. So, let’s see if you should invest in Newmont Mining stock at the current valuation.

Is Newmont Mining stock undervalued?

Newmont is among the world’s leading gold companies and a producer of copper, silver, zinc, and lead. Its portfolio of assets is anchored in favourable mining jurisdictions in Africa, Australia, and the Americas.

Newmont is the only gold producer part of the S&P 500 index and has returned 73% to shareholders in the past decade after adjusting for dividends. In this period, the S&P 500 has returned 227%.

However, the TSX gold stock trades at an attractive valuation, given its high dividend yield and strong earnings estimates. Last November, Newmont closed the acquisition of Newcrest, which should help it achieve US$500 million in pre-tax synergies in the next two years. Newmont also expects to improve its cash balance by at least US$2 billion on the back of portfolio optimization through 2025.

Newmont has a unique dividend policy. For instance, it distributes $1 per share annually if gold prices trade over US$1,400 per ounce. Newmont also has a variable dividend, which is based on the free cash flow it generates.

In the last 12 months, Newmont distributed $1.6 per share in cumulative dividends, translating to a yield of 4.8%. In addition to its tasty dividend yield, Newmont stock trades at 11 times forward earnings, which is very cheap given its earnings are forecast to expand by 35% in 2024.

What is the target price for Newmont Mining stock?

Newmont’s underperformance in the last year has surprised investors as the company reported a net income of US$286 million in the third quarter (Q3) of 2023, compared to US$212 million in the year-ago period. Further, its operating cash flow improved from just US$466 million to US$1 billion in this period.

Newmont continues to reinvest in capital expenditures, which should drive future cash flows and earnings higher. It ended Q3 with a free cash flow of US$397 million, compared to an outflow of US$63 million last year.

Newmont Mining has a robust balance sheet, ending Q3 with US$3.2 billion in cash and US$6.2 billion in total liquidity. It has a net debt-to-adjusted earnings before interest, tax, depreciation, and amortization ratio of 0.7 times, which is reasonable.

Due to its compelling valuation and strong financials, Newmont Mining stock trades at a discount of 100% to consensus price target estimates.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Metals and Mining Stocks

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 »

Gold bullion on a chart
Metals and Mining Stocks

If Gold Prices Continue to Climb, These 3 Stocks Could Skyrocket

Market certainty and geopolitical tensions typically enhance the demand for gold, and this rise is reflected in a wide range…

Read more »

gold stocks gold mining
Metals and Mining Stocks

Why Agnico-Eagle Stock Rose 5% on Monday

Agnico-Eagle stock is up 15% in the last year as inflation fears and elevated geopolitical risk are sending gold prices…

Read more »

gold stocks gold mining
Metals and Mining Stocks

Add Some Bling to Your TFSA With This Gold Mining Stock

Agnico Eagle Mines (TSX:AEM) stock looks too cheap to ignore as gold looks to make its next move.

Read more »

four people hold happy emoji masks
Metals and Mining Stocks

Got $200? 2 Lithium Stocks to Buy and Hold Forever

Lithium stocks may not be in the headlines like chip stocks, but they have just as much growth potential over…

Read more »

A miner down a mine shaft
Metals and Mining Stocks

Can NexGen Energy Stock Continue to Surge Higher?

NexGen Energy is a pre-revenue uranium stock that has returned over 2,000% to shareholders in the past decade.

Read more »

Gold bars
Metals and Mining Stocks

Barrick Gold’s 2023 Earnings Surge 200%: Is It a Buy?

Barrick Gold’s stock price continues to trade low despite a 200% surge in its earnings. What should you do?

Read more »