The guest commentary below was written by Jesse Felder of The Felder Report
It was almost exactly 2 years ago that I wrote, “BANG: Why The Gold Miners Could Soon Make FANG Look Tame.” At the time, I argued that the major gold mining stocks (Barrick, Agnico Eagle, Newmont and Goldcorp) were undervalued and poised for a strong rally, especially compared to the FANGs (Facebook, Amazon, Netflix and Google) which appeared overvalued. Since then, BANG has risen over 72%, nearly triple the gain of the FANG stocks.
Part of this dramatic outperformance is due to rising gold prices which have boosted revenue growth for the BANG stocks. Combine this with the fact that these stocks were trading at significant discounts to their historical valuations and you have a recipe for an explosion higher in prices.
In contrast, the FANG stocks two years ago were trading at their highest valuations in history even as revenue growth was poised to decelerate dramatically. Now revenue growth looks to decelerate even faster to record lows (estimates provided by Estimize). At the same time, valuations have recently risen, leaving significant gaps that represent pockets of risk for investors in these names today.
So, even if gold stocks take a deserved rest in the short run, their outperformance could easily continue as a function of FANG weakness. Longer-term, with gold prices poised to test record highs, the BANG stocks appear to still have a significant fundamental advantage over their far more popular FANG brethren.
This is a Hedgeye Guest Contributor piece written by Jesse Felder and reposted from The Felder Report blog. Felder has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.