As the Dow’s upward momentum has slowed, enough investors have returned to gold to take it through $1,300. Consequently the gold equities index (HUI) is up 21% so far this year. The financial downdraft of deflation is again topical as German courts throw a wrench in the European Central Bank’s liquidity injection plans, and China tries to address its excess debt. Toss in a little geopolitical threat in Russia and Ukraine, and you may have the makings of a rally with some legs.
In a new research report, the Precious Metals analysts at J.P. Morgan make the case that while the heady days of gold at $2,000 are not just around the corner, there is certainly enough momentum to at least retrace some of the huge sell-off of the past year. The J.P. Morgan team points out that when interest rates and equity indices were rising, spot gold fell to test $1,180 an ounce and gold equities disconnected from the broader stock markets. Now that the Dow has lost momentum and interest rates have pulled back, gold equities are looking like a much better deal. They also point out that given the precious metal sector’s small size, limited money flows can give the sector a lift.
Here are the three top gold stocks to buy now at J.P. Morgan.
Compañía de Minas Buenaventura SAA (NYSE: BVN) is Peru’s largest, publicly traded precious metals company and a major holder of mining rights in Peru. It is engaged in the mining, processing, development and exploration of gold and silver and other metals via wholly owned mines, as well as through its participation in joint exploration projects. The company owns 43.65% of Minera Yanacocha SRL (a partnership with Newmont Mining), an important precious metal producer; 19.58% of Sociedad Minera Cerro Verde, an important Peruvian copper producer; and 49% of Canteras del Hallazgo, owner the Chucapaca project. Investors receive a tiny 0.1% dividend. The J.P. Morgan price target is a strong $19. The Thomson/First Call estimate is $16.87. The stock closed Wednesday at $12.82, so a move to the J.P. Morgan target would be an outstanding gain of almost 50%.
Eldorado Gold Corp. (NYSE: EGO) engages in the exploration, development, mining and production of gold properties in Turkey, China, Greece, Brazil and Romania. The company also explores for iron, silver, lead, zinc and copper ores. Its principal properties include Kisladag and Efemcukuru gold mines located in Turkey; Jinfeng open pit and underground gold mine, situated in southern China; and the Olympias gold, silver, lead and zinc development project and the Skouries gold-copper development project located in northern Greece. Investors are paid a small 0.3% dividend. The J.P. Morgan price target is $9, and the consensus target is $8.52. Eldorado Gold closed Wednesday at $6.84.
Goldcorp Inc. (NYSE: GG) has caught the eye of contrarian traders already this year. The stock is up more than 22% in 2014, and it is one of the big three at J.P. Morgan. Goldcorp’s gold production rose by 11.6% during 2013 and reached more than 2.6 million ounces of gold. For 2014, the company plans to keep increasing its production to range between 3 million and 3.15 million ounces of gold — 15% higher than in 2013. This rise is mainly due to the Éléonore and Cerro Negro mines, which will start to produce this year, and the rise in production in the Peñasquito and Pueblo Viejo mines. In addition, the company has sharply scaled back its capital expenditures. For 2014 it is expected to be $2.4 billion, down from last year’s guidance of closed to $3 billion. Investors are paid a 2.2% dividend. The J.P. Morgan price target is $32, and the consensus target it $28.80. Goldcorp closed Wednesday at $27.11.
Central banks are still printing money in vast quantities in the United States, United Kingdom, Europe and Japan. The risks associated with all this money printing may not be known for a few years, but they have not gone away. Investors may have temporarily forgotten about these risks (inflation), but sooner or later investor demand for gold is likely to return. After all, gold is the only global currency in which the supply cannot be increased at will by central banks. The J.P. Morgan stocks to buy are a solid, and inexpensive way to keep the gold trade on.