Newmont Corp (NYSE:NEM) Passes Peter Lynch's GARP Investment Test

Investors aiming to construct a portfolio for the future frequently look to the ideas of famed fund manager Peter Lynch. His method, explained in One Up on Wall Street, centers on finding companies with increasing earnings that are available at sensible prices, a concept commonly called Growth at a Reasonable Price (GARP). Lynch supported a fundamental, long-term ownership style, preferring businesses with consistent growth, good profitability, and sound financial statements, while steering clear of overly promoted or debt-heavy firms. A central idea is the Price/Earnings to Growth (PEG) ratio, which aids in assessing if a stock's price is supported by its earnings growth.

One firm that recently appeared from a filter using Lynch's standards is Newmont Corp (NYSE:NEM), the largest gold mining company globally. We will look at how Newmont fits the main points of a strategy inspired by Lynch and what that could indicate for future-focused investors.

Matching the Lynch Standards

A Peter Lynch filter generally searches for firms that display a particular mix of growth, value, and financial strength. According to the given data, Newmont seems to satisfy many of these important measures:

• Consistent Earnings Growth: Lynch preferred firms with a clear history of growth, but was cautious of speeds that were too high to continue. The filter demands a 5-year average EPS growth between 15% and 30%. Newmont's EPS has increased at an average yearly pace of 21.58% over the last five years, putting it directly within this target range of good and possibly maintainable increase.
• Sensible Valuation using PEG: Possibly the most important Lynch measure is the PEG ratio, which modifies the standard P/E ratio for a firm's growth rate. A PEG of 1 or less implies the market may not be fully valuing the available growth. Newmont's PEG ratio, calculated from past growth, is 0.80, showing its present price seems sensible compared to its historical earnings growth.
• Good Profitability (ROE): Lynch wanted firms that effectively produce profits from shareholder equity. A minimum Return on Equity (ROE) of 15% is a typical filter requirement. Newmont's ROE of 21.63% not only meets this level but is also one of the highest in its field, indicating high-grade profitability.
• Cautious Financial Strength: To reduce high risk, Lynch stressed strong financial statements. Two main filters are a Debt-to-Equity ratio under 0.6 (with a liking for below 0.25) and a Current Ratio above 1 to confirm short-term solvency.
  • Newmont's Debt-to-Equity ratio is a very cautious 0.17, showing little dependence on debt.
  • Its Current Ratio is 2.04, showing more than enough capacity to meet immediate liabilities.

A Broad Fundamental Perspective

Outside the exact filter settings, a wider view of Newmont's fundamental condition supports its position as a financially stable firm. As per ChartMill's detailed fundamental report, Newmont receives a total score of 7 out of 10, with especially high marks in profitability and financial health.

The report notes that the firm's profit margins and returns on capital are some of the highest in the Metals & Mining field. Its financial statement is strong, with low debt and a high Altman-Z score, implying very low risk of failure. From a price perspective, while its basic P/E ratio might seem high alone, it is viewed as low compared to similar firms in its industry. When growth is included through measures like the PEG and Price/Free Cash Flow ratios, the price argument gains strength.

The GARP Case for Newmont

For the GARP investor, Newmont offers a situation that fits the Lynch thinking. It is not a high-risk growth prospect but a confirmed sector leader displaying:

1. A firm record of earnings growth at a maintainable speed.
2. A price that seems sensible when that growth is considered.
3. Outstanding profitability measures and a very secure financial statement.

These traits are exactly what Lynch wanted to create a durable, future-oriented portfolio. The firm works in a field, gold mining, that some may call "ordinary," but it supplies a necessary material and has proven it can grow earnings while keeping financial order.

Finding More Investment Options

Newmont Corp is one instance that passed a particular group of filters designed after Peter Lynch's method. Investors wanting to locate other firms that match this pattern of maintainable growth at a sensible price can review the complete filter results and modify the standards using the Peter Lynch Strategy stock screener.

Disclaimer: This article is for information only and is not financial guidance, a suggestion, or an offer to purchase or sell any securities. Investing carries risk, including the possible loss of initial investment. You should perform your own analysis and talk with a certified financial consultant before making any investment choices.