It’s amazing that with markets essentially where they were this time last year, the two big stories so far in 2016 are the resurgence in crude oil and the renewed interest in gold. It probably should come as no surprise, given that some of the biggest and most prestigious Wall Street banks were very negative on both to start the year, and typically that is ultimate contrarian indicator.
In a new research note from Michael Hartnett, the superb chief investment strategist at Merrill Lynch, he notes, as he has for some time, that many investors are very bearish and nervous about a “summer of shocks.” Cash levels are high, and most managers that do own stock are buyers of the high-quality variety. He also says some contrarians see gold as still undervalued despite the outstanding 2016 surge higher.
We screened the Merrill Lynch research universe for gold stocks rated Buy and found four for our readers to consider.
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 posted outstanding results at the end of April, with adjusted earnings per share more than double the Merrill Lynch estimate. Agnico Eagle also noted that it now expects 2016 production to be at the top end of guidance, and that could continue to bode well for earnings.
The company 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 are paid a 0.7%% dividend. The Merrill Lynch price objective for the stock is $52, and the Thomson/First Call consensus target is $44.35. The share closed most recently at $48.31.
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 0.43% dividend. The $24 Merrill Lynch price target compares with the consensus estimate of $18.96, as well as the $18.47 share price at Tuesday’s close.