It was one of the best trades of 2016, and investors who bought gold miners at the beginning of the year or the end of 2015 saw a stunning 31% rise in the precious metal. With the gold index getting absolutely pounded over the last half of August, some are looking for a correction. The Philadelphia Gold and Silver Index (XAU) was down a stunning 11% alone last week, and that was the biggest decline since last January.
A new report from Merrill Lynch’s very respected precious metals analyst Michael Jalonen and his team reiterates their long-term bullish outlook, but points to short-term technical and fundamental trends that could signal a sizable correction.
They list five top picks that they remain very positive on, and we highlight the four that make sense for investors looking to add to or initiate precious metal trades. All are rated Buy at Merrill Lynch.
This top company with a solid balance sheet 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.
The Merrill Lynch 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. The analysts see a solid second half and expect higher output and lower costs.
Goldcorp investors are paid a 0.50% dividend. The Merrill Lynch price target for the stock is $26, and the Wall Street consensus target is at $21.45. Shares closed Tuesday at $15.47, down over 5% on the day.
This another solid company for investors looking for a gold presence. Royal Gold Inc. (NASDAQ: RGLD) is a precious metals royalty and stream company engaged in the acquisition and management of precious metal royalties, streams and similar production-based interests. The company owns interests on 193 properties on six continents, including interests on 38 producing mines and 24 development stage projects.
The company posted solid second-quarter numbers. Merrill Lynch loves the solid asset base of long-life royalties operated by some of the best gold mining companies in the world. The royalty type companies make sense for investors wanting to avoid the actual mining aspect of sector.
Investors are paid a 1.25% dividend. The Merrill Lynch price target is $95 and the consensus target is posted at $91.96. The stock closed Tuesday at $73.62 a share, down over 4%.