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It’s been a wild ride for many asset classes in 2019. On top of big gains in stocks and big swings in Treasury yields, gold has had a monster year as well, due to so much global uncertainty and aided by incredibly low interest rates.

Now gold has come back down to about $1,465 per ounce after having peaked at about $1,550 just in the past couple of months. One favorite trade for the so-called gold bugs is to buy the gold miners into periods when gold is strong. After all, if production costs are more or less the same if gold is up or down, then getting leverage to those profits by mining and producing gold makes sense. Some of the top established gold mining and exploration players also pay a dividend.

When sell-side research firms issue upgrades and downgrades, investors have a right to question the motives. The firms may own positions or may have underwriting relationships, and, in some cases, they may be questioned over their judgment. Argus is a firm that issues independent research that is not motivated by commissions and management fees, and now it is sticking by big upside calls in the world’s two largest post-merger gold stocks despite gold’s sell-off.

Argus also does not have its bullish thesis based solely on sky-high gold prices. The firm expects gold to trade in a range of $1,200 to $1,600 per ounce in 2019, and its average price of $1,400 is still well under where gold is now. The firm believes that moderate inflation will be a headwind for gold in 2019.

Newmont Goldcorp Corp. (NYSE: NEM) was maintained with a Buy rating and a $45 target price. That’s about 20% implied upside to its target price. Newmont Goldcorp has roughly a 1.4% dividend yield, and the recent $37.00 share price compares with a 52-week range of $29.77 to $41.23 and a sell-side consensus analyst target price from Refinitiv of $48.26.

Barrick Gold Corp. (NYSE: GOLD) was maintained with a Buy rating as well, but Argus lowered its target price to $20 from $22. That’s also about 20% implied upside to its target price, and Barrick’s dividend has close to a 0.9% yield. Its recent $16.35 share price compares with a $20.38 consensus target price and is in a 52-week trading range of $11.52 to $20.07.

It is important to consider that the two largest mining outfits are also loosely together in some form. The two companies completed a transaction this last summer that established Nevada Gold Mines. This joint venture is owned 38.5% by Newmont Goldcorp and 61.5% by Barrick. Barrick is the managing partner, with Newmont Goldcorp getting to have two of the five seats on the board of directors.

Newmont Goldcorp’s third-quarter adjusted net income of $292 million (or $0.36 per share) was up from $175 million (or $0.33 per share) a year earlier, but that was still $0.02 under Argus’s own estimate. The results included a 57% gain in revenues to $2.71 billion and were shown to reflect the formation of Nevada Gold Mines, as well as stronger production and higher realized gold prices. Its third-quarter gold production of 1.23 million ounces was 29% higher than from the same period of 2018, and its average realized price of $1,476 per ounce was $275 an ounce higher, while its all-in sustaining costs were up 10% from a year earlier. The Argus report further said:

Management projects full-year 2019 gold production of 6.3 million ounces, down from previous guidance of 6.5 million ounces (at an AISC of $965 per ounce, down from previous guidance of $975 per ounce). In 2018, gold production totaled 5.1 million ounces at an AISC of $909 per ounce. Newmont Goldcorp’s outlook assumes a $1,200 per ounce average gold price, a $16 per ounce silver price, a $2.50 per pound copper price, a $1.05 per pound zinc price, and a $0.90 per pound lead price. … We are raising our 2019 EPS estimate to $1.34 from $1.23.

Barrick’s management expects that its own gold production in 2019 will be at the higher end of its previous forecast range of 5.1 million to 5.6 million ounces. More good news is that its costs of sales are forecast to come in at the low end of its previously issued guidance range of $910 to $970 per ounce, and its all-in sustainable cost likely will be $870 to $920 per ounce.

Argus values Newmont Goldcorp at 28 times its 2019 earnings per share estimate and with a price-to-book multiple of about 1.2. According to the Argus views, Barrick comes with slightly higher valuations. Barrick is now valued at about 31 times the Argus 2019 earnings per share estimate and at about 25 times its own 2020 earnings per share estimate. Its price-to-book multiple of 1.5 is said to be below peers and below the midpoint of its five-year historical range.

Barrick has a market cap of nearly $29 billion, versus $30 billion for Newmont Goldcorp. That’s billions of dollars in upside combined, if the expectations come to fruition.

Some investors prefer just to own gold outright to avoid individual company risk. Other investors prefer the leverage of the gold miners to higher prices. If Argus proves to be right in its forecasts, there is more implied upside in these two miners than there is in the shiny yellow metal itself. As a reminder, most Dow Jones industrial and S&P 500 stocks are given an implied 8% to 10% upside on most Buy and Outperform ratings at this stage of the bull market.

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