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%.