First, gold mining stocks dominate the list of the top 10 “undervalued” stocks.
Here are the gold miners in the top 10 and their discounts to consensus target price: Resolute Mining (37.8 per cent), Gold Road Resources (33.7 per cent), Ramelius Resources (31 per cent), Silver Lake Resources (28 per cent) and St Barbara (27.9 per cent).
Lower down on the list are Saracen Mineral Holdings (22 per cent), Regis Resources (21.9 per cent) and Newcrest Mining (21 per cent).
The sharemarket could be out of whack with price targets because of the uncertainty over the outlook for physical gold following a year when the price of the precious metal soared 27 per cent in US dollars.
Gold may also be losing its coveted position as the preferred safe haven asset during times of economic uncertainty. Institutional acceptance of bitcoin as an alternative safe haven “asset” not correlated to movements in other asset classes could be putting a dampener on gold’s outlook.
Strategists at JPMorgan Securities published bearish gold price forecasts in their 2021 global asset allocation outlook. They predicted the price of an ounce of gold would fall about 10 per cent to $US1650 by December this year.
Another thematic is the extremely difficult task facing analysts trying to predict the future earnings of companies in volatile sectors or in sectors facing severe disruption.
It is not surprising that Origin Energy and Aurizon Holdings are trading at significant discounts to their target prices. Both are exposed to the fortunes of coal as a fuel for electricity production and an export earner.
The most “undervalued” company of the lot is Mesoblast, a bio-pharmaceutical company that develops allogeneic cellular medicines.
Its share price has been highly volatile over the past three months in response to updates about the progress of clinical trials of remestemcel-L in ventilator-dependent patients with moderate to severe acute respiratory distress syndrome because of COVID-19.
Also, the median share price target is skewed by one analyst having a price target of $7.89 and another of $1.22. The stock closed at $2.31 on Monday.
Stocks with much broader coverage and less volatile earnings include Nearmap, which is trading at a 27 per cent discount to its median target price, and IOOF Holdings, which is trading at a 25 per cent discount to its median target price.
One stock that jumps out of the list is Telstra. It would appear the market has not yet cottoned on to the importance of its reliable dividend yield in an era of ultra-low interest rates.