Things were really chugging along for President Trump and the new administration until they hit a massive speed bump. The inability to repeal and replace Obamacare the first time around sent a big signal to the markets — a signal that political instability in the United States combined with the Brexit and other eurozone elections, on top of the possibility for currency risks around the globe, make instability a distinct possibility.
In a new research report, JPMorgan, while not expecting any huge breakout in the price of gold, like other firms on Wall Street, does think the floor is in. The firm also feels that owning the right companies makes sense given the current global environment. The report noted this:
We believe gold has attractive investment appeal as a hedge against inflationary surprises, compressed real rates and “black-swan” type political risks. Yet a flat gold outlook diminishes the rationale for owning leveraged equities.
It went on to list three specific qualities JPMorgan is looking for in top stocks to own:
- Stock specific equity rerating catalysts
- A credible road map to grow exposure to the gold price and grow shareholders returns in a flat gold price environment
- Attractive valuation support
Five gold stocks are rated Overweight at JPMorgan.
Agnico Eagle Mines
This top stock is JPMorgan’s most preferred U.S. gold producer. 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.
While the company missed fourth-quarter earnings estimates as sales were lower than production, the company unveiled plans to grow gold output to 2 million ounces by 2020 with new output from the Meliadine and Amaruq mines. Top analysts feel that the company’s ambitious plans for 2020 are achievable.
Shareholders receive a 0.9% dividend. The JPMorgan price target for the stock is $60, and the Wall Street consensus target is $51.75. The shares closed Wednesday at $43.16.
This small cap company provides more aggressive accounts a lower price to add more shares. Gold Fields Ltd. (NYSE: GFI) produces gold and holds gold reserves in South Africa, Ghana, Australia and Peru. It engages in underground and surface gold and surface copper mining and related activities, including exploration, extraction, processing and smelting.
The company holds interests in eight operating mines with an annual gold production of approximately 2.16 million ounces, as well as mineral reserves of approximately 46 million ounces and mineral resources of approximately 102 million ounces. It also produces copper in Peru and holds attributable copper mineral reserves totaling 532 million pounds and mineral resources totaling 910 million pounds.
JPMorgan has a $5.36 price target. The consensus target is $3.76, and shares closed Wednesday at $3.60.