Commodities & Metals

Deutsche Bank Says It Is Time to Increase Gold Holdings: 3 Stocks to Buy Now

Lee Jackson

Published: October 5, 2016 9:55 am

Last Updated: January 13, 2020 2:46 am

Most top strategists on Wall Street often present points of view that are vastly different. Some are bullish, some bearish. Some positive on the future for the economy, others decidedly negative. One thing almost all seem to agree on is, regardless of who wins the presidency in a month, the dollar will weaken. Perhaps more so under a Trump administration as he has vowed to renegotiate our trade agreements, but under a Clinton administration as well.

Commodities such as precious metals tend to do well in weaker dollar markets, and while gold has traded higher over the past year, a substantial drop in the dollar has some saying that the $1,500 an ounce level is not out of the question. A new research report from Deutsche Bank says it is time to increase precious metal exposure, and it has three top gold picks. With Tuesday’s massive sell-off in gold, the time to add shares looks even better

Barrick Gold

This is one of the top stocks in the sector and has had a nice run off the lows, but it is way down from highs printed five years ago. Barrick Gold Corp. (NYSE: ABX) produces and sells gold and copper. The company is also involved in exploration and mine development activities in various countries, including the United States, Canada, Australia, Argentina, Chile, Peru, the Dominican Republic, Papua New Guinea, Tanzania, Zambia, and Saudi Arabia.

Barrick’s principal properties include the Cortez, Goldstrike, Pueblo Viejo, Lagunas Norte, Veladero, Zaldívar and Lumwana mines, and its Pascua-Lama project. As of December 31, 2014, the company had proven and probable mineral reserves of 93.0 million ounces of gold and 9.6 billion pounds of copper.

Deutsche Bank has pointed out in the past that Barrick is the world’s largest gold mining company, it also has exposure to copper and silver and it holds interests in a nickel project in the Democratic Republic of Congo. Last year the company slashed the dividend and continues on a strong cost-cutting course that includes the sale of its Australian Cowal gold mine for $550 million to the Australia-based Evolution Mining. The company generated $471 million in free cash flow (FCF) in 2015, its first positive FCF in the past four years.

Barrick investors receive a 0.5% dividend. The Deutsche Bank price target for the stock is $22, and the stock was lifted to Buy from Hold and is the top pick. The Wall Street consensus target price is $23.21. Shares closed most recently at $15.45, down over 11% on the day.

Newmont Mining

This is one of the largest mining companies, as well as a solid buy for more conservative accounts and a top pick at Deutsche Bank. Newmont Mining Corp. (NYSE: NEM) is a leading gold and copper producer. It 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 it was named the mining industry leader by the Dow Jones Sustainability World Index in 2015. The company is 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 announced recently that “first gold” has been poured at its new mine, called the Merian gold mine in Suriname in South America. Newmont reported Merian contains gold reserves of 5.1 million ounces and that annual production is expected to average between 400,000 and 500,000 ounces of gold at competitive costs during the first five full years of production. Costs are expected to be among the lowest in Newmont’s portfolio, averaging between $650 and $750 per ounce in all-in sustaining costs in the first five years.

Newmont investors receive a tiny 0.3% dividend. Deutsche Bank raised its price target to $50 from $49. The consensus price objective is $47.05, and the shares closed Tuesday at $34.25 after retreating more than 10%.

Silver Wheaton

This is another top company that many on Wall Street favor. 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 Silver Wheaton’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.

The company fits nicely into the Merrill Lynch 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 0.8% dividend. The $37 Deutsche Bank price target compares with the consensus target of $33.55. The shares closed Tuesday at $23.56, also down more than 10%.

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, but they can really help if the market goes into correction or bear market mode, as they tend to trade inverse to markets. Adding shares after the big sell-off Tuesday looks like a very solid move.