Commodities & Metals

RBC's Top Five North American Gold Stocks to Buy for 2014

One trade that has worn out investors over the past year has been the precious metals, and particularly gold stocks. With precious metals producers focusing on higher return ounces, the industry gaining control over costs and a gold price that appears to have found a floor, the turn may be at hand. The analysts at RBC Capital Markets believe the industry as a whole is in a better position to deliver margin expansion at a faster pace than at any time in the past couple of years. This could be the moment the investors looking to own gold stocks have waited for.

In a new research report, the analysts at RBC contend that with an improving outlook for precious metal prices likely to drive margin expansion, strengthen balance sheets and provide a catalyst for re-rating, they believe precious metal equities are well positioned to continue to outperform other mining stocks and potentially the broader market. That could be huge for investors who take the plunge now.

Here are the top Outperform-rated stocks at RBC for investors looking to add gold stocks to their portfolios now.

Barrick Gold Corp. (NYSE: ABX) is top name rated Outperform at RBC. Between asset sales and new equity, the company has raised nearly $4 billion in liquidity. Coupled with a lower dividend payout of $235 million and reduced capital expenditures, Barrick should generate about $1.2 billion in free-free cash flow. That is a number investors can be excited about. The stock pays investors a 1.0% dividend. The Thomson/First Call price target for the stock is $20.41. Barrick closed Thursday at $19.42.

Goldcorp Inc. (NYSE: GG) is another Outperform-rated name that ranks high at RBC. The company operates as a gold producer involved in the exploration, development and acquisition of metal properties in Canada, the United States, Mexico and Central and South America. Goldcorp has been altering its mine plans, cutting spending and disposing of assets in order to reduce costs and focus on the most profitable production. Now those efforts have begun paying off. Investors are paid a 2.1% dividend. The consensus price target is $29.37. Goldcorp closed Thursday at $26.67.

Royal Gold Inc. (NASDAQ: RGLD) is another play that makes the RBC list. It is a precious metals royalty company engaged in the acquisition and management of precious metal royalties and similar interests. The company’s portfolio consists of 202 properties on six continents, including interests on 36 producing mines and 21 development stage projects. Investors are paid a 1.2% dividend. The consensus price target is $70.99. Royal Gold closed Thursday at $69.19.

Silver Wheaton Corp. (NYSE: SLW) is a top gold and silver stock for investors. The company has 20 long-term purchase agreements associated with silver and gold related to 23 mining assets. Its principal portfolio includes silver and precious metal streams on the Barrick’s Pascua-Lama project, Hudbay’s Constancia project and Vale’s Salobo and Sudbury mines. Investors are paid a 1.3% dividend. The consensus price target is $29.64, versus $25.14 at the close on Thursday.

Yamana Gold Inc. (NYSE: AUY) rounds out the top five names to buy at RBC. The company has been known to use extremely conservative assumptions in declaring its reserves, and as a result, it downgraded very few ounces last year. In fact, Yamana’s reserves were essentially flat year-over-year. Furthermore, the company’s resources — a category of in-ground gold that is less restrictive — grew meaningfully year-over-year. Investors are paid a 1.4% dividend. The consensus price target is $11.44. Yamana Gold closed Thursday at $9.54.

The reason that gold has been so out-of-favor is almost always attributed to the decrease in the government’s quantitative easing program. The fact is that gold purchases, especially in Asia and India, have skyrocketed as the price has plummeted. Plus, an increasingly volatile geopolitical outlook has drawn investors back to the asset class. While most portfolios only need a small allocation to the sector, it makes good sense to have a position to offset other asset classes.

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