Feb 25, 2012

Posted by in Commodities | 0 Comments

Tips For Investing In Gold Stocks That Work

Investing in gold stocks is a great decision if you want to make more money. These stocks can earn you a nice income, but they are no sure thing. One thing a lot of investors do not realize is that gold stocks often do not perform the same as the precious metal itself. While gold always goes up in price, the companies that invest in it sometimes do not due to other variables.

There are a number of factors in play that determine how profitable a company is. For instance, a company could mismanage their money, or have high overhead expenses and long term debt. These companies obviously would not be a wise investment, even if gold prices were going up a lot.

For this reason, you want to do thorough research before investing in gold stocks.
When putting money in gold companies, there are a few things you need to look for. First of all, find a company that makes consistent profits.

The best firms will have been profitable for at least the past decade, if not more. Looking at the past history of a company is very important for determining how well it will do in the future.

Look at the long term outlook when investing in gold stocks

The most important variable in this is the long term debt levels. They must be low, or else you should avoid the stock. Even if a company has been doing well for a long time, high long term debt levels signal trouble on the horizon.

Look at the stock price when investing in gold stocks

When investing in gold stocks, make sure you find companies that have an undervalued stock price. Finding a great performing company means little if their stock price is overvalued. Short term, the prices of gold stocks can be changed based on market fluctuations and other variables that have nothing to do with the company’s performance. However, long term a company’s stock price will perform the same as the company.

Look for companies with a stock price that is 70% or less of the firm’s intrinsic value. If you find such a company, you know it is a good investment.

Conclusion

Finding the best stocks is challenging, and will take time and effort. However, if you are willing to put forth the effort, you can see returns of 15-20% per year when investing in gold stocks.

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