Credit Suisse a Cautious Buyer of Top Gold Stocks

Commodities & Metals

Published: April 24, 2014 8:50 am

There has been a wide divergence in the metals and mining sector. Copper has sold off, but copper equities have outperformed. Silver has done pretty much the same thing. In a new research report, the analysts at Credit Suisse point out the fact that larger cap gold equities began 2014 relatively expensive at a 12% net-asset-value implied gold price premium to spot gold. They feel that the sector was “de-rated” during year-end reporting, driven in part by greater-than-expected reserve and cost reductions that ended up being below Wall Street estimates. The firm screened for producers with strong balance sheets, good free-cash-flow and reduced costs.

Here are the top gold stocks to buy at Credit Suisse. The analysts point out that the first quarter is typically a weak one for the sector, and investors may want to watch for earnings reports.

Agnico Eagle Mines Ltd. (NYSE: AEM) will report earnings soon and the Credit Suisse team thinks they can beat estimates. The stock also recently caught an upgrade to Overweight at RBC. The company remains in the middle of a bid for Canada’s Osisko Mining and its Canadian Malartic mine. Consolidation at attractive prices could become much bigger in the space. Investors are paid a 1.1% dividend. The Credit Suisse price target for the stock is $39. The Thomson/First Call estimate is set at $35.12. The stock closed Wednesday at $28.48.

Eldorado Gold Corp. (NYSE: EGO) engages in the exploration, development, mining and production of gold properties in Turkey, China, Greece, Brazil and Romania. The company also explores for iron, silver, lead, zinc and copper ores. Its principal properties include Kisladag and Efemcukuru gold mines located in Turkey; Jinfeng open pit and underground gold mine situated in southern China; and the Olympias gold, silver, lead and zinc development project and the Skouries gold-copper development project located in northern Greece. Investors are paid a small 0.3% dividend. The Credit Suisse price target is $8.50, and the consensus is at $8.46. Eldorado closed Wednesday at $5.95.

Freeport-McMoran Copper & Gold Inc. (NYSE: FCX) was battered last year like most of the top names as investors fled mining companies. The company is entering the U.S. oil and gas space, which could truly make it a powerhouse, while commodities pricing in its prime mining businesses have increased substantially this year. Global growth also may provide a tailwind for the stock, which trades at a low 12.7 times earnings. Investors are paid a very solid 3.8% dividend. Credit Suisse has a $42 price target, and the consensus target is $39.63. The stock closed Wednesday at $33.50.

Kinross Gold Corp. (NYSE: KGC) is a top small cap name for investors looking for gold exposure and the ability to buy more shares. The company plans to severely chop capital spending by as much as $555 million this year. With problematic cash flow issues, this makes good sense. Kinross also may be a nice acquisition for a company looking to increase reserves at reasonable prices. The Credit Suisse price target is a strong $6, and the consensus figure is at $5.70. Kinross closed Wednesday at $4.16.

Yamana Gold Inc. (NYSE: AUY) rounds out the top domestic names to buy at Credit Suisse. The company has been known to use extremely conservative assumptions in declaring its reserves, and as a result, it downgraded very few ounces last year. In fact, Yamana’s reserves were essentially flat year-over-year. Furthermore, the company’s resources — a category of in-ground gold that is less restrictive — grew meaningfully year-over-year. Investors are paid a 1.8% dividend. Credit Suisse has a big $11 price target on the stock, and the consensus target is even higher at $11.44. Yamana closed Wednesday at $7.82. A move to the target would represent a 40% gain for investors.

Combine the possibility of inflation with a dash of Russian aggression in Ukraine and a fairly robust demand for gold coming from Asia, and you have the makings of a demand factor for the precious metal. Will investors see the kind of bull market that drove the sector to all-time highs? Probably not. However, a small weighting in a well-rounded portfolio always makes good sense, especially when the world still is not a safe place all the time.

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