[cnxvideo id=”655223″ placement=”ros”]Uh oh, just when everybody thought Hillary Clinton had the election locked up, a seemingly continuous flow of negative WikiLeaks emails hit every day like a ton of bricks, and the damaging revelations appear to be taking a heavy toll. One sector of the market is taking notice, and as stocks sell off, gold is pushing higher, after being hit hard in the late summer and early fall.
Typically when investors are nervous over political elections or global macro uneasiness, they turn to the precious metal as a safe haven. With the spot price dropping dramatically after a good run the first half of 2016, the price of many of the top stocks has come in nicely. We screened the Merrill Lynch research universe for gold stocks rated Buy and found four that look like solid picks.
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 year-over-year in 2015. It came in 29% lower, at $810 per ounce. The company also lowered its cash cost guidance for the second time this year to $850 per ounce (mid-point) from $880 per ounce. The upgrades mainly have been due to higher-than-expected grades and currency tailwinds from the Canadian dollar and the Mexican peso.
Agnico Eagle posted solid third-quarter results, and the analysts noted this in a recent report:
Agnico Eagle reported third quarter adjusted earnings-per-share of $0.25 that was well ahead of Merrill Lynch and consensus both at EPS of $0.19. Third quarter gold output was 8% higher versus Merrill Lynch estimates; 2016 gold output guidance was raised to in-excess-of 1.6 million ounces from 1.58-1.60 million ounces.
Agnico Eagle Mines investors are paid a 0.8% dividend. The Merrill Lynch price objective for the stock is $60.75, and the Wall Street consensus target is posted at $56.71. The shares closed Wednesday’s trading at $51.22.
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Goldcorp
This top company with a solid balance sheet 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. It primarily explores for gold, silver, copper, lead and zinc deposits.
Goldcorp’s 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 few years, Goldcorp has been altering its mine plans, cutting spending and disposing assets in order to reduce costs and focus on the most profitable production.
Goldcorp investors are paid a 1.56% dividend. Merrill Lynch has a $23.25 price target on the shares, and the consensus target is $20.15. The stock closed Wednesday at $15.34 per share.
Kinross Gold
More aggressive investors may want to consider this smaller cap company. Kinross Gold Corp. (NYSE: KGC) engages in the acquisition, exploration, development and production of gold properties. The company’s gold production and exploration activities are carried out principally in Canada, the United States, the Russian Federation, Brazil, Chile, Ghana and Mauritania. It also produces and sells silver.
As of December 31, 2015, the company’s proven and probable mineral reserves included 34.0 million ounces of gold, 41.0 million ounces of silver and 1.4 billion pounds of copper.
Kinross posted quarterly numbers that were below the Merrill Lynch estimates due to a higher tax rate. The operating guidance remains unchanged. In addition the Maricunga mining activity was suspended early, and it could be sold.
The $6.50 Merrill Lynch price target is well above the listed consensus target of $5.78. The shares closed most recently at $3.90.
Royal Gold
This a solid stock for investors looking for a gold presence with somewhat less risk. Royal Gold Inc. (NASDAQ: RGLD) is a precious metals royalty and stream company engaged in the acquisition and management of precious metal royalties, streams and similar production-based interests. The company owns interests on 193 properties on six continents, including interests on 38 producing mines and 24 development stage projects.
The company maintains a solid asset base of long-life royalties operated by some of the best gold mining companies in the world. Royal Gold announced earlier this fall the acquisition of a 3.75% net value royalty (NVR) on the Crossroads deposit for $70 million. Starting in fiscal 2019, the NVR is expected to add $8 million of annual revenue to the company.
The Merrill Lynch price target is a whopping $95, while the consensus price objective is posted at $90.75. The stock ended Wednesday’s session at $69.09 per share.
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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 the markets.
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