What went wrong with the blue-chips?

What went wrong with the blue-chips?


Case Study Newcrest Mining Limited (ASX: NCM)

What went wrong with the blue-chips? Over the last couple of weeks, we have paid particular attention to gold and how the economic model has changed in the last decade. A big part of that is a drive to the blue-chip companies on the ASX. We are now taking an in-depth look at what happened to the company that should’ve been benefiting from both of these conditions. One of the largest gold miners globally, Newcrest Mining Limited (ASX: NCM).

We’ll break up the performance into two parts typically used by analysts in current conditions. Stock analysis during the GFC, and analysis of the period from pre-GFC through to now. Now as you may have viewed in my last article, Gold significantly outperformed the S&P500 Index during the GFC, perhaps expectedly. So you would expect one of the world largest gold miners to perform just about in line with that wouldn’t you? Well, you’d be right in this assumption.

What did NCM do during the Global Financial Crisis?

Newcrest Mining Limited (ASX: NCM) performed well during the GFC almost blasé to the market conditions. Well at least to the average investor. From within, it was clear that investors at all ends of the scale were piling into physical gold to escape the market conditions. When the sheep followed this strategy. It significantly increased the demand and gold supply fairly consistently at this time. Drove the gold and Newcrest Mining Limited (ASX: NCM) stock price through the roof! From $24.73 on 1st Jan 2007, peaking at $39.26. Before stabilising at $34.96 by the end of 2009 Newcrest Mining (ASX: NCM) had seen a gain of 32.68% in what was two very long years for many ASX investors.

Now I can tell you right now, as an analyst during this time. There were many doomsayer investors that thought their bearish view on the market and support for gold had finally paid off. Many holding Newcrest Mining (ASX: NCM) since well before the GFC. Patience was the virtue and they got their rewards. Unfortunately, with no exit strategy, it doesn’t matter how much patience you have! Being unwilling to take advice brought many gold investors to their knees. And in particular Newcrest Mining (ASX: NCM) investors! Constantly hit with the argument, “Phil…it’s a gold miner, a blue-chip and even pays a dividend, why would I close out?”!

So what happened next? Good question!

Well next thing you know, gold prices turned around! Not a disaster. I hear you say, plenty of time to take the profits off the table right? Well for the people holding Newcrest Mining (ASX: NCM), they had already ridden through one rough patch from March to November 2008 where the stock price dropped from $40 down to below pre-GFC levels of $17.45 and had climbed back up, so you just ride the wave, gold will always prevail!

That is until this ‘invincible’ blue-chip miner had dug a hole too big for its own good and could only try and dig its way out! From February 2013 until June 2013, Newcrest Mining (ASX: NCM) share price dropped 60% and over 50% below its pre-GFC level trading at $9.85! By the end of June, multiple banks had downgraded the stock but the damage was done, Gold prices were getting hit hard.

Newcrest Mining (ASX: NCM) had made an acquisition of Lihir gold mine at peak gold prices in 2010 (paying $9.5Billion) in this purchase, and now there were fundamental questions over whether Newcrest Mining (ASX: NCM) seniors had been involved in an insider trading scandal closing out of their Newcrest Mining (ASX: NCM) holdings within a couple of weeks of a public announcement of over $6Billion in write-downs!

Since this time I have come across hundreds of scorned investors not wishing to touch Newcrest Mining (ASX: NCM) on an investment front ever again.

Why would you invest in a fundamentally flawed company?

If you go to your favourite restaurant (They serve the best lobster!), and one time you get a waiter giving you terrible service, clearly not interested in the greater reputation of the company, and you walk out thinking that you were not cared for as a patron, do you refuse to return at any time in the future? Based on my experience with investors, many do have that approach, once-bitten, twice shy as they say. My approach however, is that you would recognise the weakness, and get the most out of your visit, soaking in the experience of every bite into that delectable and mouth-watering lobster, but leave a smaller tip of course, or perhaps not return as often.


So in a stock that has a trading range between $9.50 and $15 since this disaster occurred, spurred on by both internal and external factors, why wouldn’t you learn how to capitalise on that range of over 50% growth that can build your portfolio? This is exactly what we teach our clients to do. Here at Australian Investment Education we provide the opportunity to become part of our education program, and most importantly, to gain access to a full-time trading coach to enhance the performance of your portfolio, help you to implement your trading strategy and most importantly, set up an exit strategy!

Book a call with us today to discuss your options and discover how you can capitalise on this unmatched service quality!

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