Despite 20% Gain, Some Still See Gold as Undervalued: 4 Stocks to Buy

Commodities & Metals

Published: May 18, 2016 9:50 am

Last Updated: January 13, 2020 7:54 am

It’s amazing that with markets essentially where they were this time last year, the two big stories so far in 2016 are the resurgence in crude oil and the renewed interest in gold. It probably should come as no surprise, given that some of the biggest and most prestigious Wall Street banks were very negative on both to start the year, and typically that is ultimate contrarian indicator.

In a new research note from Michael Hartnett, the superb chief investment strategist at Merrill Lynch, he notes, as he has for some time, that many investors are very bearish and nervous about a “summer of shocks.” Cash levels are high, and most managers that do own stock are buyers of the high-quality variety. He also says some contrarians see gold as still undervalued despite the outstanding 2016 surge higher.

We screened the Merrill Lynch research universe for gold stocks rated Buy and found four for our readers to consider.

Agnico Eagle Mines

This top stock has remained a long-time Wall Street favorite. Agnico Eagle Mines Ltd. (NYSE: AEM) is a senior Canadian gold mining company that has produced precious metals since 1957. Its eight mines are located in Canada, Finland and Mexico, with exploration and development activities in each of these regions, as well as in the United States and Sweden. The company and its shareholders have full exposure to gold prices due to its long-standing policy of no forward gold sales. Agnico Eagle has declared a cash dividend every year since 1983.

The company posted outstanding results at the end of April, with adjusted earnings per share more than double the Merrill Lynch estimate. Agnico Eagle also noted that it now expects 2016 production to be at the top end of guidance, and that could continue to bode well for earnings.

The company remains one of the top picks on Wall Street as it fits the objectives of having quality mining assets with attractive margins, and it sports a very solid balance sheet.

Agnico Eagle investors are paid a 0.7%% dividend. The Merrill Lynch price objective for the stock is $52, and the Thomson/First Call consensus target is $44.35. The share closed most recently at $48.31.