Gold, that sinister yet provocative commodity that has been absolutely mauled since highs posted almost five years ago, has been slowly moving back to a critical level. In fact, with this year’s 8% or so move, the precious metal is very close to breaking the downtrend line that formed in early 2013. The real question for investors is whether this finally is the time when gold breaks out and moves meaningfully higher.
In a new JPMorgan research report, the commodity team raises their price target for gold, and they make the case that there are numerous reason for increased bullishness. With a sputtering economy, it’s looking ever more likely that the Federal Reserve will not raise rates again until 2017. The weakness in the dollar this week is what shot gold stock prices higher. Add in geopolitical and additional financial worries, and the safe haven status once again may be in demand.
The analyst has three top stocks that are rated Overweight that make good sense for investors looking to add exposure.
Agnico Eagle Mines
Long-time Wall Street favorite 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 Mines has declared a cash dividend every year since 1983.
The company was the most successful in reducing its all-in sustaining costs year over year in 2015. Agnico Eagle Mines came in 29% lower, at $810 per ounce. It also lowered its cash cost guidance for the second time this year to $850 per ounce (midpoint) from $880 per ounce. The upgrades have mainly been due to higher-than-expected grades and currency tailwinds from the Canadian dollar and the Mexican peso.
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The company is one of the top picks at JPMorgan as it fits the firm’s objectives of having quality mining assets with attractive margins, and it also sports a very solid balance sheet.
Agnico Eagle Mines investors are paid a 1.0% dividend. The JPMorgan price objective for the stock is set at $33.50, and the Thomson/First Call consensus price target is $33.40. The shares closed Thursday at $32.73, up 4.24% on the day.
Goldcorp
This is another company with a solid balance sheet that makes sense for investors to consider. Goldcorp Inc. (NYSE: GG) engages in the acquisition, exploration, development and operation of precious metal properties in Canada, the United States, Mexico and Central and South America.
The company primarily explores for gold, silver, copper, lead and zinc deposits. Its principal mining properties include the Red Lake, Éléonore, Porcupine and Musselwhite gold mines in Canada; the Peñasquito and Los Filos mines in Mexico; the Marlin property in Guatemala; the Cerro Negro and Alumbrera mines in Argentina; and the Pueblo Viejo mine in the Dominican Republic.
Wall Street analysts feel that the company deserves a premium valuation to its peers due to its excellent balance sheet, growth profile with lower cost new mines, longer average mine life and a solid dividend yield. Over the past year, Goldcorp has been altering its mine plans, cutting spending and disposing of assets in order to reduce costs and focus on the most profitable production.
Goldcorp investors are paid a 1.9% dividend. The $20 JPMorgan price target is higher than the consensus estimate, which is at $17.58. Shares ended trading Thursday at $13.06, after rising more than 5%.
Silver Wheaton
Wall Street also favors this top stock. Silver Wheaton Corp. (NYSE: SLW) is the largest pure precious metals streaming company in the world. Based on its current agreements, forecast 2015 estimated annual attributable production is approximately 44.5 million silver equivalent ounces, including 230,000 ounces of gold.
By 2019, estimated annual attributable production is anticipated to increase significantly to approximately 55 million silver equivalent ounces, including 325,000 ounces of gold. This anticipated growth is expected to be driven by the company’s portfolio of low-cost and long-life assets, including precious metal and gold streams on Vale’s Salobo mine and Hudbay’s Constancia project.
Silver Wheaton has 18 long-term purchase agreements and one early deposit long-term purchase agreement associated with silver and gold relating to 27 various mining assets. It has silver and gold interests primarily in the San Dimas, Zinkgruvan, Yauliyacu, Stratoni, Los Filos, Peñasquito, Keno Hill, Neves-Corvo, Cozamin, Minto, Barrick, Aljustrel, 777, Salobo and Sudbury mines, as well as the Rosemont, Loma de La Plata, Constancia and Toroparu projects.
Again, the company fits into the JPMorgan metrics for quality assets and royalty streams, and the kind of balance sheet that has protected the company from the pitfalls of miners with huge capital expenditures.
Silver Wheaton shareholders are paid a 1.5% dividend. JPMorgan has an $18 price target on the shares, and the consensus price objective is set at $18.99. The stock closed Thursday at $13.41 per share, up 4.7% on the day.
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Proper asset allocation should always include a single-digit percentage holding of precious metals like gold and silver. Not only do they hedge over the long term, they can really help if the market does go in to correction or bear market mode, as they tend to trade inversely to markets trading down.
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