If you think energy and the bank stocks have had a bad time, consider how gold investors have suffered over the past five years. Since peaking in 2011, the price of gold and gold stocks have taken an epic beating, and most investors tossed in the towel some years ago. However, gold is up big this year, trading once again around $1,200 an ounce, and it may be poised to move even higher in coming years.
In a new report, Merrill Lynch points out that the sentiment for the precious metal has gone from what they term as “uber-bearish” to “supportive.” While many investors got pushed out and washed their hands of the trade, now could be a good time to look at the sector again. With selling abating, demand increasing in Asia and world tensions growing, investors may want to consider carving out an allocation.
The Merrill Lynch team raises the price target on four top companies that are rated Buy.
Agnico Eagle Mines
This top stock to Buy 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 was the most successful in reducing its all-in sustaining costs in 2015 year over year. Agnico Eagle came in 29% lower, at $810 per ounce. It also lowered its cash cost guidance for the second time this year to $850 per ounce (midpoint) from $880 per ounce. The upgrades have mainly been due to higher-than-expected grades and currency tailwinds from the Canadian dollar and the Mexican peso.
The stock is one of the top picks on Wall Street, as it fits the objectives of having quality mining assets with attractive margins, and the company sports a very solid balance sheet.
Agnico Eagle investors are paid a 0.9% dividend. The Merrill Lynch price objective for the stock was raised to $40 from $37, and the Thomson/First Call consensus price target is $35.71. The shares closed Thursday at $35.06, up 3.42% on the day.
This top gold miner is a smaller cap play with outstanding upside potential. AngloGold Ashanti Ltd. (NYSE: AU) is the world’s third biggest producer of gold, and it operates as a gold-mining and exploration company. It also produces silver, uranium oxide, copper, molybdenum and sulphur. The company has 20 operations and exploration projects in South Africa, Continental Africa, Australasia and the Americas. The company produced 4.4 million ounces of gold in 2014, generating $5.5 billion in gold income. The company has an attributable ore reserve of 57.5 million ounces of gold and an attributable mineral resource of 240.6 million ounces.
The Merrill Lynch team notes that the company is one of the lowest cost producers of all the companies, and it has prioritized debt reduction with what they term as “self-help” initiatives to reduce the net debt on the balance sheet.
The Merrill Lynch price target was raised from $13 to $15, while the consensus target is $11.89. The shares closed most recently at $11.26, more than 5%.
This is another company with a solid balance sheet that makes sense for investors to consider. Goldcorp Inc. (NYSE: GG) engages in the acquisition, exploration, development and operation of precious metal properties in Canada, the United States, Mexico and Central and South America.
The company primarily explores for gold, silver, copper, lead and zinc deposits. Its principal mining properties include the Red Lake, Éléonore, Porcupine, and Musselwhite gold mines in Canada; the Peñasquito and Los Filos mines in Mexico; the Marlin property in Guatemala; the Cerro Negro and Alumbrera mines in Argentina; and the Pueblo Viejo mine in the Dominican Republic.
Wall Street analysts feel that the company deserves a premium valuation to its peers due to its excellent balance sheet, growth profile with lower cost new mines, longer average mine life and a solid dividend yield. Over the past few years, Goldcorp has been altering its mine plans, cutting spending and disposing assets in order to reduce costs and focus on the most profitable production.
Goldcorp investors are paid a 1.56% dividend. Merrill Lynch lifted its price target to $20 from $19, while the consensus estimate is at $17.64. Shares closed Thursday at $15.77, up almost 5.63%.
This is one of the largest mining companies, and a solid buy for more conservative accounts. Newmont Mining Corp. (NYSE: NEM) is a leading gold and copper producer. It employs approximately 29,000 employees and contractors, with the majority working at managed operations in the United States, Australia, Ghana, Peru, Indonesia and Suriname.
Newmont is the only gold producer listed in the S&P 500 index and was named the mining industry leader by the Dow Jones Sustainability World Index in 2015. It is an industry leader in value creation, supported by its leading technical, environmental, social and safety performance. Newmont was founded in 1921 and has been publicly traded since 1925.
The company just posted mixed quarterly results. While the earnings missed the Wall Street estimates, the revenues actually came in above estimates. The Merrill Lynch team points out that the company has lowered debt almost 19% since the end of 2014, a huge positive for investors.
Newmont investors are paid a small 0.41% dividend. The Merrill Lynch price target is raised to $27 from $26, and the consensus stands at $23.46. The stock closed Thursday at $25.07.
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 in to correction or bear market mode, as they tend to trade inverse to markets trading down.
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