Newmont Corp (NYSE:NEM): A Peter Lynch-Style GARP Investment in Gold Mining

Peter Lynch’s investment approach, detailed in One Up on Wall Street, centers on finding companies with steady growth at fair prices, commonly known as the Growth at a Reasonable Price (GARP) method. His system relies on fundamental analysis, preferring businesses with solid profits, low debt, and reliable earnings growth, while steering clear of overly speculative or heavily indebted firms. The approach favors holding investments for extended periods, letting compounding benefit the investor.

Newmont Corp (NYSE:NEM), a leading global gold producer, stands out as a potential match for Lynch’s criteria based on these key factors:

Why Newmont Aligns with the Peter Lynch Approach

1. Reliable Earnings Growth

   • Lynch looked for firms with consistent, moderate earnings growth, usually between 15% and 30% per year. Newmont’s 5-year EPS growth of 21.58% fits this range, showing a mix of progress and stability.
   • Analysts predict a short-term EPS drop (-9%), which needs attention. Gold mining, like other cyclical sectors, sees ups and downs, but Newmont’s history points to durability.

2. Fair Valuation (PEG Ratio ≤ 1)

   • A key Lynch measure, the PEG ratio (P/E adjusted for growth), should be ≤ 1 to indicate a bargain. Newmont’s PEG of 0.65 implies the market might be underestimating its growth relative to earnings.
   • Its P/E of 14.02 is also lower than the S&P 500 (27.11) and industry average (25.98), supporting its value case.

3. High Profitability (ROE > 15%)

   • Lynch preferred firms with strong returns on equity, showing efficient use of capital. Newmont’s 19.55% ROE beats 90% of its peers in metals and mining.
   • Its ROIC (11.01%) also tops its cost of capital, confirming operational strength.

4. Sound Financial Position

   • Lynch aimed for debt/equity below 0.6; Newmont’s 0.23 ratio shows minimal borrowing, lowering financial risk.
   • A current ratio of 2.23 indicates enough liquidity to meet short-term needs, matching Lynch’s focus on stable finances.

Key Takeaways

Newmont’s fundamental report gives it a 7/10 score, with high marks in profitability (8/10) and valuation (8/10). Strengths include top-tier margins (e.g., 38.86% operating margin) and a solid balance sheet. Risks involve falling dividends (-5.4% yearly cut) and near-term earnings challenges.

Other Factors for GARP Investors

• Commodity Role: Gold’s use as a hedge against inflation and economic shifts may attract long-term investors, though its cyclical nature demands patience.
• Dividend Outlook: The 1.45% yield is modest, but the 17.99% payout ratio hints at potential stability.

Finding More Peter Lynch Matches

For those interested in similar stocks, the Peter Lynch Stock Screener provides a filtered list of companies meeting these standards.

Disclaimer: This analysis is for educational purposes only and is not investment advice. Perform your own research or consult a financial professional before investing.