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More bad news ahead for those trying to play gold this way: Strategists

Newmont Mining was the worst performing stock in the S&P 500 for 2013. Things may be even darker in 2014, say two strategists.


In 2013, there were at least four things you could find if you dug a very deep hole: gold, gold miners, gold prices, and gold miner stocks.

The yellow metal finished the year down a sad 28.6%. Meanwhile, the Market Vectors Gold Miners ETF (the GDX) ended 2013 nearly 55% below where it started. Of that lot was the worst performing stock in the entire S&P 500 index: Newmont Mining. One of the world's largest gold producers, Newmont lost half its value in 2013.

So, will gold bugs be able to tell the difference between Newmont and a hole in the ground in 2014?

(Watch: Gold sees biggest annual loss in 3 decades)

According to JC O'Hara, Chief Market Technician at FBN Securities, things aren't going to be much better this coming year, based on the Newmont' s technicals.

"If you're looking to have a profitable 2014, there's not much in this chart that suggests that there's a countertrend trade available," says O'Hara on CNBC's Street Signs' Talking Numbers segment. "There's nothing that shows me that this chart is bottoming any time soon."

"Momentum is negative, trends are clearly lower," says O'Hara. "The next major support level that I see is back in the 2010 lows around $13. That suggests we could move lower another $9 to $10. Right now, looking at Newmont, the risk far outweighs the reward. So, I'm staying away from this chart here."

(Watch: Best & worst performers of 2013)

Marc Lichtenfeld, Chief Income Strategist at The Oxford Club, agrees with O'Hara's negative outlook.

"I would love to be contrarian here. Only five analysts rate the stock a buy out of 24," says Lichtenfeld, who also notes the stock's returns compared to the other members of the S&P 500 index. "Those kinds of things usually make me salivate, but not this time."

"Newmont hasn't generated free cash flow in two years," says Lichtenfeld. "Earnings are expected to come down next year by about 11%."

Lichtenfeld also notes that the company's reserves in 2012 were based on gold valuations of about $1,400 per ounce. Now the yellow metal is trading around $1,200 and this will likely lead to a write-down of those reserves, he says.

"The stock is trading at about 13.5 times forward earnings, which is right in line with its peers," says Lichtenfeld. "Even if you expect a rebound in gold and the miners, I think there are some better places to look."

To see the rest of the analysis by O'Hara and Lichtenfled on Newmont Mining, watch the video above.

More from Talking Numbers:

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