After a nine-year plus bull market, many investors have grown complacent. They had been rewarded as they bought every dip, small or large, but that strategy seems to be running out of gas.
Rates are going higher, albeit at a slow, steady rate. As usual, some European countries can’t seem to get their finances together, and this time it’s Italy. Lastly, despite some solid earnings this quarter, Wall Street is nervous going forward.
One way to always have a degree of protection is to own gold-mining stocks. And with gold looking to break a long time downward trend that started in April, now could be an excellent time to buy some protection and add some gold into long-term growth portfolios.
We screened the Merrill Lynch gold mining research universe and found four top companies that are rated Buy that make good sense for investors to look at now, especially given the recent turmoil in the markets.
This top company with a solid balance sheet makes sense for investors to consider now. 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.
Shareholders receive just a 0.76% dividend. The Merrill Lynch price target for the shares is $16, and the Wall Street consensus target is $15.80. The shares closed Tuesday at $10.67.
More aggressive investors may want to consider this smaller cap company. Kinross Gold Corp. (NYSE: KGC) engages in the acquisition, exploration, development and production of gold properties. The company’s gold production and exploration activities are carried out principally in Canada, the United States, the Russian Federation, Brazil, Chile, Ghana and Mauritania. It also produces and sells silver.
Merrill Lynch noted this back in August when the company reported earnings:
The company reported an in-line quarter from an adjusted earnings, production and cost point of view and reaffirmed its 2018 operating guidance. However this laudable performance was overshadowed by the “pausing” of the Tasiast Phase Two expansion due to the Government of Mauritania seeking greater benefits for the country. Completion of Phase Two is a key driver in our forecast for Kinross to sustain 2.5 million ounces of production through to 2022 (and beyond).
Merrill Lynch has a $4.25 price objective, while the consensus target price is $4.33. Shares closed Tuesday at $2.82.
This is one of the largest mining companies, and its stock is a solid buy for more conservative accounts. Newmont Mining Corp. (NYSE: NEM) is a leading gold and copper producer. It employs approximately 29,000 employees and contractors, with the majority working at managed operations in the United States, Australia, Ghana, Peru, Indonesia and Suriname. Newmont is the only gold producer listed in the S&P 500 index.
Last year Newmont announced that “first gold” has been poured at its new mine, called the Merian gold mine, in Suriname in South America. It reported Merian contains gold reserves of 5.1 million ounces and that annual production is expected to average between 400,000 and 500,000 ounces of gold at competitive costs during the first five full years of production.
Newmont has indicated that it could increase the dividend this year by at least 50%. Merrill Lynch feels the miner has sufficient free cash flow to pay higher dividends and continue reducing debt and investing in projects.
Shareholders receive a 1.75% dividend. The $41.50 Merrill Lynch price objective compares with a $40.86 consensus estimate and the most recent close at $32.41.
This is a solid stock for investors looking for a gold presence with somewhat less risk. 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.
Many on Wall Street feel that the company is very undervalued when compared to its sector peers. Backed by three new or expanding assets, Royal Gold’s revenue could grow by 13% to nearly $500 million by fiscal 2019. Royal Gold’s strong liquidity position also means it can compete for royalty and stream acquisitions.
Shareholders receive a 1.28% dividend. The Merrill Lynch price target is $93.50. The consensus target is $93.75, and shares closed Tuesday at $78.61.
Proper asset allocation should always include a single-digit percentage holding of precious metals like gold and silver. Not only do they hedge inflation over the long term, but they can really help if the market does go into correction or bear market mode, as they tend to trade inverse to markets.