Commodities & Metals

4 Gold Stocks to Buy Now Before the Inevitable 10% Sell-Off

Lee Jackson

Published: January 17, 2020 7:15 am

Last Updated: January 30, 2020 11:05 am

The more you listen to the Wall Street pundits, especially the ones in the financial media, the more they are closing in on the ultimate contrarian indicator. That’s when they present the worst four words in the history of investing: “It’s different this time.” Sure it is, teleprompter readers. With the market trading at the highest multiples in years, and the FOMO (fear of missing out) factor driving prices ever higher, you can bet that the much-needed correction is right down the road. The issue is not if, but when.

The positives for the market remain, not the least of which is continued central bank support. However, now is the time for investors to take a deep breath and see if a little portfolio hedge might be in order.

Despite the market surge, gold has held in there over the past year, and with myriad domestic concerns (such as the presidential impeachment trial in the Senate) and geopolitical worries (note recent missile attacks and potential confrontations in the Middle East), it makes sense to play it safe.

A new RBC report launches coverage on 15 North American senior gold producers and royalty companies. The analyst noted this when reviewing the precious metal:

Since the gold price bottomed in early 2016, prices have risen by ~45% over a period of >200 weeks. Compared to prior cycles, current bull market returns have been below-average, while the duration of this price cycle has been above-average. In 2020, we view gold prices as supported by ongoing monetary policy stimulus, growth outlook uncertainties, and improving sentiment, thereby improving the outlook for gold equity financial flexibility and free cash flow generation.

Four stocks that trade in U.S. dollars are rated Outperform, and all make sense for investors to add as a defensive position in growth portfolios.

B2Gold

This is a small-cap gold stock for aggressive investors looking for sector exposure. B2Gold Corp. (NYSE: BTG) is a global, growth-oriented mid-tier gold producer whose primary assets include gold mines located in Nicaragua (La Libertad and El Limon), the Philippines (Masbate), Namibia (Otjikoto) and Mali (Fekola).

The company has stated that in 2019, based on current assumptions, consolidated gold production is forecast to be between 935,000 and 975,000 ounces, with cash operating costs projected to be $520 to $560 per ounce and all-in sustaining costs at $835 and $875 per ounce.

In addition, the company announced earlier positive drill results from the Mamba zone, which is within the Anaconda area, approximately 20 kilometers from the Fekola Mine, as well as positive infill drill results from the Fekola mineral resource area and step-out results north of the Fekola resource.

RBC has a price target of $4.50 on the shares. The Wall Street consensus target is $3.50, and the shares closed Thursday’s trading at $4.09 apiece.

Barrick Gold

This is one of the top companies in the industry, and its shares have backed up from the late summer and early fall rally and are offering a solid entry point. Barrick Gold Corp. (NYSE: GOLD) and Randgold Resources completed their merger on January 1, 2019. This has created the world’s largest gold company in terms of production, reserves and market capitalization. Gold companies were involved in some of the largest corporate mergers of 2019.

On July 1 last year, Barrick and Newmont created the Nevada Gold Mines joint venture on a 61.5% to 38.5% basis with Barrick as the operator. Nevada Gold Mines is targeting $450 million to $500 million in annual operational and other synergies over the next five years.

Barrick Gold says its gold production for 2019 is expected to come in near the top end of its guidance, while copper production is forecast to be more than its earlier expectations. Preliminary results indicate it produced 5.5 million ounces of gold last year, compared with its guidance for between 5.1 million and 5.6 million ounces.

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Preliminary copper production results indicate it produced a total of 432 million pounds, compared with guidance for between 375 million and 430 million pounds.

Barrick says preliminary fourth-quarter results show sales of 1.413 million ounces of gold and 91 million pounds of copper, as well as fourth-quarter production of 1.439 million ounces of gold and 117 million pounds of copper.

The RBC price target on Barrick Gold is $20, which is in line with the $20.26 consensus target. The stock ending trading at $17.43 a share on Thursday.

Kirkland Lake Gold

This off-the-radar company offers investors solid upside potential. Kirkland Lake Gold Ltd. (NYSE: KL) engages in the acquisition, exploration, development and operation of gold properties.

The company owns and operates four underground gold mines, including the Macassa, Holt and Taylor mines located in northeastern Ontario, Canada and the Fosterville Mine located in Victoria, Australia. It also owns three milling facilities in Canada and Australia. The company was formerly known as Newmarket Gold and changed its name in December 2016.

Fourth-quarter gold production at the Fosterville mine surged 54% year over year and 21% sequentially to 191,893 ounces. For 2019, gold production surged 74% year over year to 619,366 ounces.

The surge in production reflects increased tons processed, higher average grades and improved recoveries. Notably, higher levels of production from the Swan Zone contributed to growth in average grade in the fourth quarter on a year-over-year basis.

RBC has set a $50 price target, but a consensus price target for the stock was unavailable. The last trade on Thursday came in at $44.15 a share.

Wheaton Precious Metals

This precious metals royalty company makes good sense for more conservative accounts looking to have exposure to the sector. Wheaton Precious Metals (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, Lundin Mining’s Zinkgruvan mine in Sweden and Glencore’s Antamina and Yauliyacu mines in Peru, then sells the silver and gold into the open market.

Shareholders receive a 1.28% dividend. The $33 RBC price target compares with the $35.13 consensus target, as well as the most recent close at $28.03 per 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 does go into correction or bear market mode, as they tend to trade inverse to markets.