If you’re looking to buy a stock, it never hurts to get some guidance from a trained professional.
Jeff Muhlenkamp fits that bill.
The former Army lieutenant colonel is manager of Muhlenkamp Fund. It’s a large-cap value mutual fund with $239 million of assets.
Its biggest holdings are truck retailer Rush Enterprises (RUSHA) , pharmacy-benefits manager McKesson (MCK) , semiconductor provider Broadcom (AVGO) , oil-services titan Schlumberger (SLB) , and natural gas producer EQT (EQT) .
Jeff Muhlenkamp, manager of Muhlenkamp Fund
Muhlenkamp Fund/TheStreet
Muhlenkamp Fund has returned an annualized 19.17% for the past 12 months, 10% for three years and 15.17% for five years. That’s compares to 27.16%, 9.49% and 15.5% for the S&P 500 during those periods.
Muhlenkamp recently shared his single best trade idea with TheStreet.com.
So what is that single best idea?
Newmont (NEM) , the world’s largest gold miner, which also produces copper, silver, zinc and lead. It has a market capitalization of $48 billion and a forward dividend yield of 2.4%.
Why do you like Newmont?
On the macro side, gold prices are likely to continue rising. And NEM is highly leveraged to the price of gold, with 90% of its revenue coming from gold mining.
Gold purchases by foreign central banks have become a major source of support for the precious metal. They’re buying gold instead of Treasurys for reserves. And central banks tend to be price-insensitive gold buyers.
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Gold will also benefit if highly indebted countries choose to devalue their currencies in order to manage the cost of their debt.
Newmont assumes a gold price of $1,900 an ounce in its planning. But the current price is $2,370.
In terms of company-specific factors, its profit margins should improve this year, as Newmont integrates gold miner Newcrest Mining and reduces its own debt.
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Newmont bought Newcrest last year for 26.2 billion Australian dollars (US$16.8 billion). The acquirer expects to realize US$500 million in synergies by 2025. It already has realized $105 million through the first quarter.
Newmont seeks to slash its net debt by US$1 billion through selling noncore assets and from free cash flow.
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The company is returning capital to shareholders via a US$1 per share annual dividend and a $1 billion share repurchase program.
Consensus analyst estimates are for NEM to generate US$1.8 billion in free cash flow in 2024 and $2.6 billion in 2025. If reality comes close to those forecasts, the repurchase program could be executed in a year or less.
What could go wrong?
The price of gold could decline.The synergies forecast for the Newcrest merger may not be realized.Newmont’s input costs may rise faster than gold prices, squeezing margins instead of expanding them.Local governments may increase mining costs or shut down mines.
