There are always the proverbial gold bug investors who tout the precious metal constantly and always stay very overweight regardless of demand and the macro picture. The bottom line is that from an asset allocation standpoint, all structured portfolios need a weighting to precious metals between 3% and 5%. With that noted, there are times when you should overweight gold, and now could very well be one of those times.
When you combine the geopolitical witch’s brew of the trade issues with China, the instability in Hong Kong, rising tensions with Iran and the belligerence of the political cycle starting to reenter the news cycle in a big way, you have all the ingredients for gold to surge even more.
The SPDR Gold Shares ETF (NYSE: GLD) has broken out of a six-year trading trend, and while some big money has been made already, matching highs that were posted in 2012 would still represent an almost 25% move from current trading levels. Top technical gurus feel the long sideways move could be the impetus for a big price breakout.
We screened the Merrill Lynch research database, and found four stocks that the firm has rated Buy that are solid plays for investors looking to hedge volatility, and maybe put on a winning solid short-term trade that makes sense as well.
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.
The Merrill team loves the stock and noted this recently when the company posted solid second-quarter results:
Agnico Eagle reported a solid second quarter earnings beat of $0.10 with production higher and costs lower; LaRonde drove the output beat. We and the consensus were at second quarter numbers of $0.03 and $0.04, respectively. The positive adjusted EPS variance versus our estimates was due to commercial production of 383,000 ounces that was 6% higher.
Shareholders receive just a 0.81% dividend. The Merrill price target for the shares is $67.50, and the Wall Street consensus target is $63.08. The stock closed trading on Friday at $61.58.
Franco-Nevada
This off-the-radar play offers numerous ways for investors to make money. Franco-Nevada Inc. (NYSE: FNV) is a resource sector royalty and investment company that was formed to acquire an established portfolio of mining, oil and natural gas royalties and certain equity interests. The royalty assets were spun out of Newmont Mining.
The royalty portfolio represents over two decades of acquisitions by Newmont and the old Franco-Nevada, which Newmont acquired in 2002. Franco-Nevada intends to grow through the advancement of existing properties and through acquisitions and investments.
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