Commodities & Metals

Tension With China on the Rise: Gold Stocks to Buy Now to Hedge Downside

Kirkland Lake Gold

This off-the-radar stock offers investors solid upside potential. Kirkland Lake Gold Ltd. (NYSE: KL) is a Canadian domiciled gold producer with three cornerstone operating mines located in Canada and Australia: Detour Lake, Fosterville and Macassa. It also owns and operates the Holt Complex, which includes three wholly owned mines and several assets in the Northern Territory of Australia.

In 2019, the company produced 974,615 ounces of gold at operating cash cost and all-in sustaining cost of $284 and $564 per ounce, respectively. That compares nicely with the current spot price of $1,728.

First-quarter results were solid, and the analysts noted:

Kirkland Lake Gold reported adjusted earnings per share of $0.70, in line with BofA. Free cash flow was $143 million in the first quarter of 2020. The company repurchased 9.7 million shares for $330 million in the first quarter. On the Q1 earnings call, CEO Makuch noted that Detour Lake and Macassa are ramping up. 2020 guidance will be reinstated later this year. Kirkland Lake has withdrawn 3 year guidance as it assesses the longer term impacts of COVID-19. Expect it back in the fourth quarter. Maintain Buy.

Investors receive a 1.30% dividend. BofA Securities has set a $50 price target. A consensus target was unavailable. Kirkland Lake Gold closed most recently at $38.46 a share.

Wheaton Precious Metals

This precious metals royalty stock makes good sense for more conservative accounts looking to have exposure to the sector. Wheaton Precious Metals Corp. (NYSE: WPM) is a Canadian 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.

This company reported solid results too, and the analysts said this:

Wheaton Precious Metals reported adjusted earnings per share of $0.215 in Q1, in line to BofA and Consensus. Cash flow was +50% year-over-year to $177 million ($0.40/sh). On April 2 the company withdrew guidance due to six mines being temporarily suspended due to COVID. Restarts could begin on May 30th. Wheaton is trading at a 27% discount (on Price to NAV) to its peers. Based on its growth, we believe the company should trade in line.

Shareholders receive a 0.92% dividend. The $47 BofA Securities price target compares to the $39.39 consensus target. Wheaton Precious Metals stock was last seen trading at $43.00.

Remember that 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, they can really help if the market does go back into correction or bear market mode, which is where we could be poised to go now. Gold tends to trade inverse to markets trading down.