If there was ever any doubt that President Trump and the United States are back on the center stage of world influence, that was put to rest this week when the president spoke in some of the strongest terms used at the United Nations since Ronald Reagan. With mounting global turmoil, and a very bellicose North Korea continuing to stir the pot, risks clearly are becoming more elevated.
A new research report from the Precious Metals and Minerals team at RBC also acknowledges the rising risk scenarios around the world, and it said this:
We believe that elevated global geopolitical risk factors should provide support for gold near the $1,300/ounce level, even as we head into the seasonally weak period in October and a potential Fed rate hike in December. We would take advantage of any pullback in the gold price in late fourth quarter to buy gold stocks ahead of the strong Chinese New Year demand period ahead in early 2018.
The report did note that with the recent strength in the price, a sharp spike from current levels could produce some selling. With that in mind RBC is still focused on companies it rates at Outperform. We found four that look very solid now.
Agnico Eagle Mines
This is one of Wall Street’s most preferred U.S. gold producers. 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 reported strong second-quarter results that came in above estimates on the top and bottom lines. Revenue was more than 2% than in the year-ago quarter.
Shareholders receive a 0.9% dividend. RBC considers the shares as speculative, with a price target at $54. The Wall Street consensus target is $56.91. The stock closed Wednesday at $46.93.
This is one of the top stocks in the sector, and it sold off recently, providing a solid entry point. With 2017 gold production forecast to be between 5.3 million to 5.6 million ounces, Barrick Gold Corp. (NYSE: ABX) is the world’s largest gold producer. Barrick’s reserve position is similarly large, totaling 86 million ounces of proven and probable reserves. The development of the Goldrush property in Nevada should provide another world-class asset to its portfolio.
The company has worked hard this year to deleverage the balance sheet and asset optimizations and digitization have been implemented to lower costs. Through its large reserve base, slew of development assets and no hedging, the company offers investors a big exposure to gold.
Investors receive a 0.73% dividend. RBC has a $21 price target, and the consensus target is $20.27. Shares closed Wednesday at $16.47.
More aggressive investors may want to consider this smaller cap company. Kinross Gold Corp. (NYSE: KGC) engages in the acquisition, exploration, development and production of gold properties. The company’s gold production and exploration activities are carried out principally in Canada, the United States, the Russian Federation, Brazil, Chile, Ghana and Mauritania. It also produces and sells silver.
Kinross recently announced that it will proceed with the Tasiast Phase Two and Round Mountain Project W projects. At full production by 2020, CEO Paul Rollinson sees these two projects stabilizing the company’s gold equivalent output in the 2.5 million ounce range. Trading at a discount to the peer producers, some believe that this valuation gap could be closed due to these projects.
The $5.25 RBC price objective is about the same as the $5.21 consensus target. The shares closed Wednesday at $4.33.
This is a solid stock for investors looking for a gold presence with somewhat less risk. Royal Gold Inc. (NASDAQ: RGLD) is a precious metals royalty and stream company engaged in the acquisition and management of precious metal royalties, streams and similar production-based interests. The company owns interests on 193 properties on six continents, including interests on 38 producing mines and 24 development stage projects.
The company maintains a solid asset base of long-life royalties operated by some of the best gold mining companies in the world. Royal Gold announced earlier this fall the acquisition of a 3.75% net value royalty (NVR) on the Crossroads deposit for $70 million. Starting in fiscal 2019, the NVR is expected to add $8 million of annual revenue to the company.
Many on Wall Street feel that the company is very undervalued when compared to its sector peers. Backed by three new or expanding assets, Royal Gold’s revenue could grow by 13% to nearly $500 million by fiscal 2019. Royal Gold’s strong liquidity position also means it can compete for royalty and stream acquisitions.
The RBC price target is an odd $83, given that the posted consensus is $90.45. The shares closed Wednesday at $90.31.
Proper asset allocation should always include a single-digit percentage holding of precious metal like gold and silver. Not only do they hedge over the long term, they can really help if the market does go into correction or bear market mode, as they tend to trade inverse to markets.