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At the close of each trading week thebull.com.au publishes a Market wrap: top 10 rises and falls list of stocks with the highest share price gains or drops at the close.
One of the many issues confronting newcomers to share market investing is where to go for investment possibilities.  The internet abounds with lists – top ten, bottom ten, best performers last year, and on and on.  But once an investor begins to scan a list, a second issue arises.  What selection criteria they should employ?  The second is more problematic than the first since the kind of advice one finds on the financial websites can be confusing to first-time investors.
On the one hand, the advice to “buy low, sell high” appeals to common sense and in many cases the investors’ own preference for bargain hunting.  Our intrepid newcomer digs further and discovers the maxim represents an investing philosophy called value investing.
Confusion sets in when learning there is a contradictory investing bromide, buy high, sell higher, advice stemming from the growth investing school of thought. Critics of the value investing approach rightfully ask the question how do you define low?  
Proponents claim market participants fail to see the real value of some distressed stocks, which will shine once market perception catches up to reality.  The fact remains calculating the real or true value of any stock is a complex task, even for highly trained financial professionals.  Growth investors have market sentiment at their backs, as upward price movement is objective reality, not a set of potential eventualities.  Critics here rightly point to drastic declines in stock price when high growth stocks fail to live up to market expectations.
One of history’s great investors – Peter Lynch from the US – popularized a third approach, essentially a hybrid combining aspects of both value and growth. The GARP (Growth at a Reasonable Price) approach, like the “pure” investing approaches, have favored metrics investors can use to spot likely investment opportunities.  However, like the pure approaches, it is a rare occurrence for a prospective target to meet all criteria.  In truth, investors must make judgement calls on all investments, favoring some criteria over others.
In the case of GARP investing, one could argue the most relevant metric is the Price to Earnings Growth (P/EG)ratio.  The P/EG combines the Price to Earnings valuation ratio with a stock’s estimated future growth rate.  A ratio of 1.0 shows the stock’s price is in sync with its expected growth.  P/EG ratios under 1.0 represent stocks that could be undervalued. 
The same caveats that apply to all share market investments apply here – estimates could be wrong and market conditions can change rapidly.  With that in mind, Market Movers and 52 Week Highs and Lows list are good scouting spots since they can contain stocks representing all three investing approaches. 
In the Market wrap: top 10 rises and falls listing appearing here on thebull.com.au for the close of trading on 19 October, eight of the Top Ten Risers were miners, with five sporting outsized earnings growth estimates and P/EGs well within the limits sought by GARP investors.  The following table lists the five stocks by earnings growth forecast.

All these mining companies are in the Materials Sector, where the average P/E is 13.38 and the average P/EG is 0.75.  
Galaxy Resources (GXY) has an analyst consensus rating of OUTPERFORM and is expected to go from a FY 2017 earnings per share (EPS) loss to a positive EPS of $0.279 in FY 2018 before falling to $0.119 in FY 2018.  Yet the stock price is down 35% year over year.  How can that be, a recent arrival to stock investing might ask.
Galaxy is number three on the Top 30 ASX Short List.  Short investors bet a stock price will go down, not up and profit if they get it right.  Galaxy Resources mines hard rock lithium at Mt Cattlin here in Western Australia, with a hard rock development project at James Bay in Quebec Canada. Lithium is also extracted from brine and Galaxy has a major project – Sal de Vida – underway in Argentina, South America.  
When demand estimates for lithium skyrocketed due to its usage in batteries for electronic devices and the expected increase in lithium-ion powered Electric Vehicles (EVs) miners jumped into the space and prices declined as supplies increased.  Short sellers are betting supply will continue to outstrip demand, with Morgan Stanley supporting that view in early 2018 with a grim forecast.

Others remain bullish and despite the price issues and recent operational setbacks, the Galaxy stock price has still produced handsome returns for its investors.

The latest bad new came on 18 October when the company released a disappointing production update due to permitting delays and the following cautionary statement:
• “Pricing indicators throughout Q#3 were mixed and volatile. Domestic battery grade lithium carbonate prices in China retracted (US$11,000 – US$12,000/t) following the combination of an increase in low quality domestic brine supply from the high cost Qinghai operations being sold into the market at deflated prices and a temporary period of slower downstream demand within China.”
The company has no debt and recently sold some of its tenements in Argentina to South Korean conglomerate POSCO for $280 million.  The short sellers may yet be right on Galaxy, but the company has two additional production operations for lithium underway.  Shorts may also be anticipating new battery technology reducing the role of lithium, but as yet no credible alternative exists.
Dacian Gold (DCN) owns the Mount Morgans Gold Project in Western Australia, with first production coming in March of 2018.  The company has been on investors’ radar since the successful completion of a Feasibility Study in late 2016 was quickly followed by project financing and commencement of construction in early 2017. 
The company’s October production update was positive, reaffirming Dacian was “on track to meet FY19 production guidance of 180,000-210,000 ounces.”  Investors liked what they heard.  Analysts like the stock as well, with a total of six analysts covering Dacian – two at BUY; there at OUTPERFORM; and one at UNDERPERFORM.

The company listed on the ASX in November of 2012 immediately following its acquisition of Mount Morgans and the share price is up about 350% since listing.
Resolute Mining (RSG) is another gold miner, with an operating mine here in Australia and two in Africa.  The company has seen both revenues and profit decline in each of the last three fiscal years.  However, analysts remain bullish on the stock with an OUTPERFORM rating, due in part to the company’s long-term efforts to lower costs and development work expected to lead to substantial increases in production.
Resolute’s Syama mine in Mali has an extended mine life to 2028, at a minimum.  The Australian Ravenswood Mine has an expansion project underway which would extend mine life to 2029.  The company has a mine under development in Ghana with an additional five exploration sites in Africa. 
Northern Star Resources (NST) went on an acquisition binge a few years back, vaulting the company into the top tier of ASX gold miners.  The company first listed on the ASX in 2003, exploring for nickel/copper/cobalt.  In 2010 the company shifted its focus to gold, acquiring its first mine, Paulsens Gold Mine.  By October of 2013 Northern Star was named “Explorer of the Year” at the Gold Investment Symposium and the already rising stock price exploded.

Saracen Minerals (SAR) has two operating gold projects in Western Australia, Carosue Dam and Thunderbox, both with long life and exploration potential for additional growth.  
Of the five miners in our table, Saracen has turned in the best financial performance over the last three fiscal years, by far.  The company has grown both revenues and profit in each year, with revenues rising from $276 million to $423 million to $511 million; an 85% increase over the period.  Net profit was even more impressive, increasing 192% from a profit of $25.9 million in FY 2016, increasing slightly to $28.4 million in FY 2017 and then ballooning to $75.6 million in FY 2018.
The latest Quarterly Report, released in mid-October, continued more positive news, with record gold production and an impressive drop in AISC (All in Sustaining Costs) down to $993 per ounce.  Development projects continue at both goldfields, paid for from operating capital, maintaining the company’s no debt advantage. 
Despite the fluctuating price of gold, the company’s ten-year share price performance has been outstanding, second only to Northern Star.

Despite a fluctuating gold price, a review of the shareholder returns over three, five, and ten years indicates the gold miners in our table weathered the storm well.
Global economic conditions are questionable, at best, with massive debt levels in developed countries and the spectre of a full-blown US/China trade war, so the price of gold may be in for some upside.
Some critics scoff at gold as a long-term investment, with that skepticism rubbing off on the gold miners.  The following chart compares the gold price against two major stock indices since the beginning of the 21st century.  The graph paints a different picture.

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