A strong recovery

Shares in Fresnillo (LSE: FRES), the world’s biggest producer of silver and Mexico’s second largest gold producer, have put on a storming 76% since the end of September, to 1,026p today. That comes after a four-year decline in earnings is set to come to an end with a strong recovery forecast this year — and growth forecasts put the shares on attractive-looking PEG ratios of 0.2 and 0.5 for this year and next.

Fresnillo’s production has been rising along with the soaring price of the shiny stuff, and that should further boost this year’s profits. But the shares are now on a forward P/E of 52 for this year, dropping only as far as 31 based on 2017 forecasts — with a 2017 dividend yield of only around 1.5% on the cards. A valuation like that is based on an assumption that precious metals prices will continue on up, and it seems like a very risky one.

Soaring gold shares

The price of gold has been pushing Randgold Resources (LSE: RRS) shares through the roof too, with a 62% gain since September to 5,660p. And with three years of falling earnings set to reverse with a forecast 39% rise this year, Randgold shares aren’t quite as highly rated as Fresnillo’s — they’re on P/E multiples of a relatively modest 30 and 26 for this year and next, though expected dividend yields are even lower at less than 1%.

With Randgold being very conservative in the exploration projects it undertakes, and with a total production cost of a little under $800 per ounce, any further gold price rises should be geared up nicely to Randgold’s bottom line.

If you really must invest in a gold miner, Randgold could be the one to go for — but you’d be gambling purely on sentiment towards gold prices, with no real rational valuation of the stuff possible. And any drop in the price would result in a bigger fall in Randgold’s earnings.

Safety in insurance

I think we’re on more solid ground with insurer Admiral Group (LSE: ADM) and its 60% share price rise in 18 months, to 1,919p, as that gain has been on the back of a sound fundamental performance rather than on the fancies of gold watchers.

With a policy of returning cash to shareholders, Admiral is expected to provide a total dividend yield of 6.1% this year, rising to 6.5% next, so you’d actually have enjoyed a better return than just the share price appreciation. But the company will be pushed to maintain dividend levels like these unless its business can keep on growing. Fortunately, Admiral has been doing well from the motor insurance business in the UK with premiums rising, and there’s further overseas expansion on the cards over the next few years.

All in all, Admiral is easily my pick of these three for the one most likely to sustain its share price growth with the least risk.

The post Can Fresnillo plc, Randgold Resources limited and Admiral Group plc keep on flying? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.