Long-time market investors have always tended to chuckle at the “gold-bugs” as they tend to stay positive on the precious metals all the time. Not many are laughing now, as the spot price has broken out to six-year highs, and investors late to the party have been bidding up the top companies in the sector to 52-week highs. One thing is for sure: the gold trade is on, and it makes sense to add some shares now.
In a new Deutsche Bank research report, the firm’s precious metals team raises its price target for gold, as well as for three top stocks the firm covers and rates at Buy.
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The report noted these three top reasons for increasing the targets:
- We have increased our gold and silver price forecasts for the next six quarters to reach a level of $1,575/ounce based on our updated view of the macro, including what we see as the primary drivers of gold: real interest rates, the equity risk premium, the US dollar, and central bank purchases;
- We have shown macro scenarios that could result in gold going above $1,700/ounce.
- We have provided updated forecasts for each of our companies under coverage following recent results and management conference calls.
The following three picks make sense for growth accounts looking to hedge risk some.
Barrick Gold
This is one of the top companies in the industry, and its shares broke out of a long trading range recently. Barrick Gold Corp. (NYSE: GOLD) and Randgold Resources completed their merger on January 1, 2019. This marriage has created the world’s largest gold company in terms of production, reserves and market capitalization.
The company posted solid second-quarter earnings earlier this week. Adjusted earnings and revenue met Wall Street’s expectations, and the company said it expects full-year gold production in the upper end of its prior outlook. Wall Street was also positive on the firm’s reduction of debt, which was down to $5.8 billion in the second quarter from $6.4 billion in the same period of last year.
The Deutsche Bank team said this in regards to the company:
We believe Barrick Gold is well positioned to benefit from a favorable gold pricing environment. Management has now completed the early section of the integration process with Randgold. We continue to like the company on cost reductions, potential divestment’s (could be within the next quarter), and synergies/optimization across the portfolio, with the Nevada JV with Newmont Goldcorp. Barrick’s management has identified Kalgoorlie as a mine to be divested, and we believe Tongon, Lumwana, and the Massawa projects could be other assets that are non-core in the near-to-medium term.
Other analysts see the stock headed higher as well.
Barrick Gold pays investors a small 0.88% dividend. The Deutsche Bank price target for the shares is $20, which compares to the Wall Street consensus figure last seen at $17.75. The stock closed Thursday’s trading at $18.39 a share.
Pan American Silver
This is another top pick, and it doesn’t get the coverage on Wall Street that some of the bigger companies do. Pan American Silver Corp. (NASDAQ: PAAS) is one of the largest primary silver producers globally, with mines in Bolivia, Mexico, Peru and the world-class undeveloped Navidad silver project located in Argentina. Gold production of more than 500,000 ounces annually (with gold mines in Canada and Peru) is sufficient for it to qualify as a mid-tier gold producer. The company is also a producer of lead, zinc and copper.
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The Deutsche Bank analysts like the company’s diversity and said this in the research report:
We maintain a BUY rating on Pan American Silver, as we continue to believe in the portfolio optionality, which could drive upside to the company, such as Escobal mine or the Navidad project. We also believe further drilling at La Colorada could be a positive catalyst. Silver price trading has improved, but is still trading at a wide range vs gold compared to historical ratios.
Pan American Silver investors receive a 0.88% dividend. Deutsche Bank has a price target of $20, while the posted consensus target is $18.45. The shares closed at $16.99 on Thursday.
24/7 Wall St.Wheaton Precious Metals
Shares of this precious metals company make good sense for more conservative accounts looking for exposure to the sector. Wheaton Precious Metals Corp. (NYSE: WPM) is a Canadian-based precious metals streaming company with approximately 60% of its revenues from the sale of silver and 40% from gold.
Under 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 it sells the silver and gold into the open market.
Last December, Wheaton Precious Metals announced that it had reached a favorable settlement with the Canada Revenue Agency with respect to the 2005 to 2010 tax years. The company now anticipates that there will be no additional cash taxes for those taxation years for its international subsidiary. This tax case had depressed the valuation, and its resolution should help the shares continue to move higher.
Shareholders here receive a 1.35% dividend. The $29 Deutsche Bank price objective compares with the $31.80 consensus target price, and the stock closed Thursday at $26.66 per share.
Proper asset allocation should always include at least 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 the markets.
These are the countries that control the world’s gold.
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