Very quietly, gold and the gold miners have consistently pushed higher. Despite the recent downturn, and the fact that naysayers constantly bemoan the fact that the precious metal offers no earnings potential, it does offer a safe store of value.
The SPDR Gold Shares ETF (NYSE: GLD) is up over 10% since last October, after being hammered for the first half of 2018. Sure the massive fourth-quarter sell-off sparked some of the buying, but a cauldron of continued political issues at home, combined with trade conflicts and geopolitical worries abroad, have kept investors nervous, and with good reason.
On March 6, the bull market reached the staggering age of 10 years, as the upward move started in March of 2009. The sell-off last Friday showed just how nervous investors are, so we screened the Merrill Lynch research database looking for gold stocks rated Buy and found three outstanding values.
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 1.6% dividend. The Merrill Lynch price objective for the shares is $45, and the Wall Street consensus target is $40.21. The shares closed trading on Monday at $34.90.
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 1.15% dividend. Merrill Lynch has a $93.50 price target, and the consensus target is $94.71. The shares closed at $93.25 on Monday.
Wheaton Precious Metals
This is another stock that makes good sense for more conservative accounts looking to have exposure to the sector, and it is the top streaming pick at Merrill Lynch. 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. This tax case had depressed the valuation, and this should help to boost the shares.
Shareholders receive a 1.45% dividend. The $32.50 Merrill Lynch price target compares with the $29.36 consensus target. The stock closed at $24.83 a share.
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 also really help if the market goes into correction or bear market mode, as they tend to trade inverse to markets.