Every time it seems like maybe things have quieted down, there is another incident that looks to be a terror attack and investors get nervous. Following the arrest of a suspected plotter in the Paris attacks, a bombing at the Brussels airport and train station roiled the markets, and once again gold traded higher as a safe haven. While this too eventually will move from the headlines, it’s always a reminder for a portfolio hedge.
The one constant that the recent events remind investors of is that we live in a world where this horrible mayhem has become all too commonplace, and while there is no reason to live constantly worried, it is important to protect portfolios with the kind of insurance that precious metal companies provide. Having a safe haven allocation just makes sense.
We screened the Merrill Lynch research universe and found four companies rated Buy that fit well in aggressive growth portfolios.
Agnico Eagle Mines
This top stock has remained a 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 has declared a cash dividend every year since 1983.
The company was the most successful in reducing its all-in sustaining costs in 2015. Agnico Eagle came in 29% lower year over year, 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.
The company is one of the top picks on Wall Street, as it fits the objectives of having quality mining assets with attractive margins, and it sports a very solid balance sheet.
Agnico Eagle investors are paid a 0.9%% dividend. The Merrill Lynch price objective is $39.50, and the Thomson/First Call consensus target price is $37.94. The shares closed Tuesday at $36.25.
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AngloGold Ashanti
This top gold miner is a smaller cap play with outstanding upside potential. AngloGold Ashanti Ltd. (NYSE: AU) is the world’s third biggest producer of gold, and it operates as a gold mining and exploration company. It also produces silver, uranium oxide, copper, molybdenum and sulphur. The company has 20 operations and exploration projects in South Africa, Continental Africa, Australasia and the Americas. The company produced 4.4 million ounces of gold in 2014, generating $5.5 billion in gold income. The company has an attributable ore reserve of 57.5 million ounces of gold and an attributable mineral resource of 240.6 million ounces.
Merrill Lynch notes that the company is one of the lowest-cost producers of all the South African companies, and it has prioritized debt reduction with what it terms as “self-help” initiatives to reduce the net debt on the balance sheet.
Merrill Lynch has a $15.34 price target, which is higher than the consensus target of $14.39. The shares closed most recently at $12.96.
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 1.56% dividend. The $18.50 Merrill Lynch price target is higher than the consensus, which is at $17.26. Shares closed Tuesday at $16.83.
Newmont Mining
This is one of the largest mining companies, as well as a solid buy for more conservative accounts. Newmont Mining Corp. (NYSE: NEM) is a leading gold and copper producer that employs approximately 29,000 employees and contractors, with the majority working at managed operations in the United States, Australia, Ghana, Peru, Indonesia and Suriname.
Newmont is the only gold producer listed in the S&P 500 index and was named the mining industry leader by the Dow Jones Sustainability World Index in 2015. The company is also an industry leader in value creation, supported by its leading technical, environmental, social and safety performance. Newmont was founded in 1921 and has been publicly traded since 1925.
The company posted mixed results recently, with earnings missing the consensus Wall Street forecast, but with revenues that actually came in above estimates. Merrill Lynch points out that the company has lowered debt almost 19% since the end of 2014, a huge positive for investors.
Newmont investors are paid a small 0.4% dividend. The Merrill Lynch price target is $27. The consensus target stands at $26.72. The stock closed Tuesday at $27.79.
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Proper asset allocation should always include a single-digit percentage holding of precious metal like gold and silver. Not only do they hedge over the long term, they can really help if the market does go into correction or bear market mode, as they tend to trade inversely to markets trading down. They also provide a cushion when world events rattle investor nerves.
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