Gold is not a bubble but neither are gold stocks

CHICAGO (Scrap Monster): Skeptics of the yellow metal may be thinking gold is a bubble as the yellow metal hits new record highs this week and has risen every year for the past decade,according to Zacks Investment.

Yet if you look closer at the numbers, especially during the recent rally, the "bubble" thesis looks a bit more suspect, Zacks Investment said.It feels Gammon Gold Inc. (NYSE: GRS), Anglogold Ashanti Ltd. (NYSE: AU) and Barrick Gold Corp. (ABX) are worth investing at this point of time.

What Bubble? Stocks Beating Up on Gold
Over the last month, gold is up just 2.1%. Does that sound like a raging bubble to you? Looking further out, over the last 6 months, the performance of stocks has crushed that of gold.Using the Gold ETF, SPDR Gold Trust (GLD), as a comparison as it tracks the physical metal, the GLD was up 7.9% in the prior 6 months while the S&P 500 returned nearly double that, at 14.6%.

How Hot Are the Gold Mining Stocks?
Another indicator of a possible bubble market would be investors pouring into the gold mining stocks and pushing valuations of those stocks higher than the norm.

This is what we saw in the technology bubble as tech stocks traded with sky-high valuations as investors "didn't care" what the earnings (if any) were. Technology stocks traded as high as 50x earnings before busting and coming back down to earth.

Yet if you look at many of the gold companies, they are trading with attractive valuations that don't indicate a "bubble" at all.

P/Es Indicate "Value"
In fact, a quick screen reveals many of the large gold miners trading at, dare I say it, "cheap" valuations with P/Es below 15. Even as an industry, the gold miners are trading with a forward P/E of only 16.8.What gives? How can there be a bubble yet some of the gold miners are value stocks? That's because there is NO bubble. But the combination of rising gold prices and cheap mining stocks certainly creates an investing opportunity.

3 Cheap Gold Mining Stocks

You don't have to overpay to invest in the gold miners. These 3 companies are all trading with P/Es under 15 and have rising earnings estimates.

1. Gammon Gold Inc. (NYSE: GRS) is a Canadian-based miner exploring in Mexico. At just a 1.4 billion market cap, it is the smallest of the 3 gold miners listed here. It has been expanding through acquisition as it recently acquired Capital Gold for $420 million in cash and stock. Capital Gold also mines in Mexico.

Shares have been hot, spiking 41% in the last 6 months, well ahead of the GLD's return over that period. Still, with a forward P/E of just 11 and a price-to-book ratio of 2.1, Gammon Gold is squarely within the value territory.

Earnings estimates are also rising, with the Zacks Consensus up 20 cents to 89 cents in the last 3 months. Gammon is a Zacks #3 Rank (hold) stock.

2. Anglogold Ashanti Ltd. (NYSE: AU) is a South African metals giant with exploration around the world. This Zacks #1 Rank (strong buy) is expected to grow earnings by 82% in 2011. 2011 Zacks Consensus Estimates have risen to $3.87 from $3.51 in the prior 3 months. Anglogold unwound its hedges in 2010 so it is now completely unhedged to gold prices.

Shares are trading at just 13x forward estimates and shareholders also are rewarded with a dividend yielding 0.5%.

Over the last 6 months, shares have under performed compared to the GLD, returning just 3.7%.

3. Barrick Gold Corp. (ABX) is a large Canadian miner with operations at 25 mines around the world. The 2011 Zacks Consensus Estimate has jumped to $4.25 from $3.88 in the last 90 days. That is earnings growth of 28% over 2010.

The valuations are attractive with a forward P/E of just 12.7x. This Zacks #3 Rank (hold) also has a price-to-book ratio of 2.6, which is considered "value" as it's under 3.0.

Shares have returned 10.5% over the past 6 months, just outpacing the GLD over the same period. It also pays a higher dividend than the industry, with a yield of 1.0%. The industry averages 0.8%.