Prospecting for predictable earnings in the gold mining sector

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We are looking for North American gold miners with strong earnings

After increased volatility in July and August, equity markets are entering September in a guarded state, with several key economic indicators being released this week, including the ISM Manufacturing PMI – which came out Tuesday and edged higher in August – and U.S. non-farm payrolls, which will come Friday. These figures could influence an expected Sept. 18 rate cut by the U.S. Federal Reserve.

Polling data from Reuters suggest the Fed could deliver up to three rate cuts of 25 basis points each by year’s end. A rate cut could be a catalyst for equity markets in September, which historically has been a poor month for North American equities. September returns over the past five years for the S&P 500 Index has averaged minus-4.23 per cent, while the S&P/TSX Composite Index has averaged minus-2.37 per cent The U.S.

First, we screen for North American-listed gold mining companies with a market capitalization greater than US$1-billion. Next, we screen for companies with high earnings quality. We use the LSEG Starmine Earnings Quality model to screen for companies with an Earnings Quality Score greater than or equal to 90, representing the top 10 per cent of companies. The Earnings Quality model is a percentile ranking of stocks based on the sustainability of earnings, with 100 representing the highest rank, and has four components: accruals, cash flow, operating efficiency and exclusions.

 

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