Very quietly, gold and the gold miners consistently have pushed higher. Though naysayers constantly bemoan the fact that the precious metal offers no earnings potential, it does offer a safe store of value and always has.
The SPDR Gold Shares ETF (NYSE: GLD) is up over 7% over the past four months, after being hammered for almost half of last year. For sure the massive fourth-quarter sell-off sparked some of the buying, but a cauldron of political issues at home, combined with trade conflicts and geopolitical hot-spots abroad, have kept investors nervous, and with good reason.
In just over six weeks the bull market will reach the staggering age of 10 years old, and as of now, on almost all metrics, it remains overbought and surely overvalued.
Recently RBC made some changes to the target prices of the gold stocks in the firm’s coverage universe. We screened the stocks that were rated Outperform and found four that have solid upside to the RBC price targets. All make good sense for investors looking to add a hedge to their current equity holdings.
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.
When the company reported third-quarter results, it raised its gold output guidance for the second time in a year from 1.58 million to 1.60 million ounces. The Nunavut projects remain on track for startups in mid-2019, which should boost gold output to 2 million ounces in 2020.
Shareholders receive a 1.12% dividend. The RBC price target for the shares is $55, and the Wall Street consensus target is $49.31. The stock closed Wednesday at $39.17.
This top company will soon be owned by a much bigger operator in the sector. 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.
Newmont Mining Corp. (NYSE: NEM) said recently that it would buy smaller rival Goldcorp in a deal valued at $10 billion, creating the world’s biggest gold producer by output. The deal is the second high-profile merger in the mining industry since Barrick Gold agreed to buy Randgold Resources in September of last year to cut costs.
Shareholders receive a 0.76% dividend. RBC has a $15 price target, while the consensus target is $13.23. Shares closed Wednesday at 10.50.
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 1.3% dividend. The $104 RBC price target compares with the $92.11 consensus target. Shares closed Wednesday at $81.74.
Wheaton Precious Metals
This is another precious metals stock that makes good sense for more conservative accounts looking to have exposure to the sector. Wheaton Precious Metals Corp. (NYSE: WPM) is a Canada-based, precious metals streaming company with approximately 60% of its revenues from the sale of silver and 40% from gold.
Under the terms of long-term contracts, the company purchases silver and gold from a variety of mines, including Goldcorp’s Penasquito mine in Mexico, Vale’s Salobo mine in Brazil, the Lundin Mining Zinkgruvan mine in Sweden and Glencore’s Antamina and Yauliyacu mines in Peru, then sells the silver and gold into the open market.
In December the company announced it had reached a favorable settlement with the Canada Revenue Agency with respect the 2005 to 2010 tax years. Wheaton now anticipates that there will be no additional cash taxes for the 2010 to 2025 taxation years for its international subsidiary. This tax case had depressed the valuation, and this should help to boost the shares.
Shareholders receive a 1.91% dividend. The RBC price target is $30. The consensus target is $28.63, and shares closed Wednesday at $18.86.
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 also really help if the market does go into correction or bear market mode, as they tend to trade inverse to markets.