Money Pours Into Gold as Tensions Rise: 4 Top Picks for the Rest of 2017
The constant volley of threats between Washington, D.C., and North Korea is apparently starting to wear on investors’ nerves, as last week over a half billion dollars flowed back into the precious metal. There may be more of that to come, as even though gold is up 12% this year, the sector has seen outflows since the beginning of the year of $755 million, which represents 2.5% of assets.
The bottom line for investors is there are only a few safe havens to hide in when things get dicey, and at this juncture, U.S. Treasury debt is trading at almost the highest levels of 2017 and hardly makes sense with yields still near generational lows.
What does make sense is a percentage of gold in portfolios, so we screened the Merrill Lynch research database for Buy-rated stocks that look solid now. We found four that look like good plays for the rest of the year.
Agnico Eagle Mines
This is one of Wall Street’s most preferred U.S. gold producers. 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 reported strong second-quarter results that came in above estimates on the top and bottom line. Revenue was more than 2% than in the year-ago quarter.
Shareholders of Agnico Eagle Mines are paid a small 0.9% dividend. The Merrill Lynch price target for the stock is $56, and the Wall Street consensus target is $56.06 a share. The stock closed trading on Tuesday at $46.86 per share.
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.
Some 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 also posted solid second-quarter results, and the analysts said this at the time:
Goldcorp reported second quarter adjusted earnings-per-share of $0.12, above ours and consensus at 8 and 9 cents. Gold sales were higher than forecast. For 2017 Goldcorp maintained its gold output guidance of 2.5 million ounces but the company lowered AISC by 3% to $825/oz. Due to lower capital spending, our analysis indicates the company will be free-cash-flow positive in 2017. Maintain Buy on undervaluation.
Goldcorp investors are paid a 0.6% dividend. Merrill Lynch has set its price target at $20, and the posted consensus target was last seen at $16.83. The shares ended Tuesday’s trading at $12.91 apiece.