Commodities & Metals

Why Credit Suisse Still Sees Big Upside for 5 Large Cap Gold Producers

It is no secret that the bull market is now well into its eighth year. When analysts issue or reiterate Buy and Outperform ratings, they are currently implying upside of 8% to 15% in the larger S&P 500 index companies. There are cases where the upside price targets can imply higher gains, and there are many instances where the upside targets are only 5% or even less above the current share price.

Credit Suisse has updated many of the targets and valuations for its large cap precious metals producers, and even as some targets have been trimmed the implied upside comes with a range of 22% to 35%. The firm’s updating estimates for the third quarter and beyond were to be ahead of the Denver Gold Forum. They are calling for capital allocation to projects and for more potential in M&A with stronger sector balance sheets and an ability to add value in the existing portfolio.

What has happened in the past year is that the gold-mining stocks have by and large come down considerably from their 52-week highs. Specifically, the key exchange traded funds that track gold have rocketed higher in 2017 but are down handily from a year ago. The key gold price ETF (GLD) is up 12% so far in 2017 but down over 3% from a year ago. The key gold mining stock ETF (GDX) is up 12% year to date but down 15% from this time last year. It is normal to see analysts trim target prices after big sell-offs. After all, you can’t expect a whole group of stocks to easily rise 50% even if they have pulled back handily.

24/7 Wall St. has included trading history and how each new Credit Suisse target price compares with the Thomson Reuters consensus analyst target. Additional commentary has been included as well. Most of the firm’s investment views come with risks that range from commodity prices to operational to geopolitical.

Agnico Eagle Mines Ltd. (NYSE: AEM) was worth over $10.6 billion, and Credit Suisse’s target price went to $59 from $64. This is still about 28% higher than the prior closing price of $46.14. Its rating at Credit Suisse is Outperform, and the firm’s $59 target price is above the consensus analyst price of $56.71. Agnico Eagle Mines has a 52-week trading range of $35.05 to $56.08.

Agnico Eagle is considered a top pick from Credit Suisse. The firm’s report noted:

Agnico Eagle is a top pick for its strong exploration and project pipeline, strong balance sheet, track record and valuation which is more attractive versus peers on net asset value than investors realize due to Agnico Eagle mining below reserve grade (provides tailwind for future cash flow) and robust resource base which has higher than usual potential to convert into reserves over time. Commodity prices are the key risk to our view.

Barrick Gold Corp. (NYSE: ABX) was last seen trading at $16.33. Credit Suisse has an Outperform rating, and its prior $22.50 target price was trimmed to $22.00. This still implies upside of 35%, and its consensus target price is only $20.22. Barrick’s market value is $19 billion. Its shares have traded in a range of $13.81 to $20.78 over the past year.

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