Newmont Mining Corporation (NYSE:NEM) shares are down more than -19.46% this year and recently increased 0.20% or $0.06 to settle at $30.22. Zoetis Inc. (NYSE:ZTS), on the other hand, is up 24.51% year to date as of 09/13/2018. It currently trades at $89.70 and has returned -0.04% during the past week.
Newmont Mining Corporation (NYSE:NEM) and Zoetis Inc. (NYSE:ZTS) are the two most active stocks in the Gold industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.Growth
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect NEM to grow earnings at a 3.54% annual rate over the next 5 years. Comparatively, ZTS is expected to grow at a 16.46% annual rate. All else equal, ZTS’s higher growth rate would imply a greater potential for capital appreciation.Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 38.06% for Zoetis Inc. (ZTS). NEM’s ROI is 5.90% while ZTS has a ROI of 16.00%. The interpretation is that ZTS’s business generates a higher return on investment than NEM’s.Cash Flow
The amount of free cash flow available to investors is ultimately what determines the value of a stock. NEM’s free cash flow (“FCF”) per share for the trailing twelve months was +0.13. Comparatively, ZTS’s free cash flow per share was +0.27. On a percent-of-sales basis, NEM’s free cash flow was 0.94% while ZTS converted 2.45% of its revenues into cash flow. This means that, for a given level of sales, ZTS is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios are important because they reveal the financial health of a company. NEM has a current ratio of 4.60 compared to 4.40 for ZTS. This means that NEM can more easily cover its most immediate liabilities over the next twelve months. NEM’s debt-to-equity ratio is 0.38 versus a D/E of 0.00 for ZTS. NEM is therefore the more solvent of the two companies, and has lower financial risk.Valuation
NEM trades at a forward P/E of 19.59, a P/B of 1.49, and a P/S of 2.22, compared to a forward P/E of 26.00, a P/B of 22.04, and a P/S of 7.76 for ZTS. NEM is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. NEM is currently priced at a -31.02% to its one-year price target of 43.81. Comparatively, ZTS is -3.85% relative to its price target of 93.29. This suggests that NEM is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. NEM has a beta of 0.27 and ZTS’s beta is 1.01. NEM’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. NEM has a short ratio of 1.90 compared to a short interest of 2.30 for ZTS. This implies that the market is currently less bearish on the outlook for NEM.Summary
Zoetis Inc. (NYSE:ZTS) beats Newmont Mining Corporation (NYSE:NEM) on a total of 7 of the 14 factors compared between the two stocks. ZTS higher liquidity, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. In terms of valuation, NEM is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, CSCO has better sentiment signals based on short interest.