If there ever was a contrarian buy when 2016 started, it was gold stocks. The spot price had already been hammered when some firms came out and said the precious metal would plummet to $900. But a funny thing happened on the way to the bottom, the spot price started to turn, demand picked up, especially in Asia, and the dollar started to weaken after over a year-long rally.
With most portfolio managers way underweight the miners, some of the top stocks took off and caught many on Wall Street by surprise. In a new series of research notes, the analysts at Merrill Lynch, like many on Wall Street, are almost forced to raise price targets after many of the top stocks closed in on their current price targets. We found five rated Buy where the analysts raised the targets, some substantially.
Agnico Eagle Mines
This top stock 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 year over year in reducing its all-in sustaining costs in 2015. 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.
This remains one of the top picks on Wall Street as it fits the objectives of having quality mining assets with attractive margins, and it sports a very solid balance sheet.
Agnico Eagle investors receive a 0.7% dividend. The Merrill Lynch price objective was raised to $52 from $45, and the Thomson/First Call consensus target is $42.58. The shares closed Monday at $46.76.
This is another top 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. It primarily explores for gold, silver, copper, lead and zinc deposits.
Goldcorp’s 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 receive a 0.4% dividend. The Merrill Lynch price target went to $20 from $19, and the consensus target is $17.64. Shares closed Monday at $19.50.