Commodities & Metals

Gold Moves Higher on Terror and Policy Concerns: 4 Stocks to Buy Now

Lee Jackson

Published: March 24, 2017 8:40 am

Last Updated: January 12, 2020 1:39 pm

Every time you think we are in for a peaceful stretch, it happens again, a terrorist attack in a major city with fatalities. This time it was London again, and once again, the attacker started things with a vehicle as a weapon. The omnipresent specter of terror combined with concerns over domestic and foreign policy have put a little bounce into the step of the price of gold.

With the price of gold once again trying to push through the $1,250 per ounce level and stay there shows that $1,200 may indeed be the floor for the precious metal. The bigger question is can gold breakthrough $1,300 and go higher or is it range bound? One thing is for sure: the terror threat isn’t going away and the policy concerns are legitimate.

We screened the Merrill Lynch research database for gold stocks that are rated Buy. We found four that make good sense now.

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.

While the company missed fourth-quarter earnings estimates as sales were lower than production, the company unveiled plans to grow gold output to 2 million ounces by 2020 with new output from the Meliadine and Amaruq mines. The Merrill Lynch analysts feel that the company’s ambitious plans for 2020 are achievable.

Shareholders are paid a small 0.9% dividend. The Merrill Lynch price target for the stock is $55, and the Wall Street consensus target is $51.78. The stock closed most recently at $44.33 a share.

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.

Some 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.

While Merrill Lynch reduced estimates for 2017 and 2018 recently, it is positive on the company’s growth strategy that intends to boost output by 20% and lower all-in sustaining costs by 20%, all by the year 2020.

Goldcorp investors are paid a 0.5% dividend. Merrill Lynch has a $21 price target, and the consensus target is at $18.16. Shares closed on Thursday at $15.91.

Newmont Mining

This is one of the largest mining companies, and a solid buy for more conservative accounts. 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 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.

The company reported solid fourth-quarter results that beat Merrill Lynch estimates and the consensus figures. Newmont also gave 2017 guidance that called for 5% year-over-year output growth and 6% for all-in-sustaining-costs. The company also noted the several options exist for the company to longer-term gold output even higher. The company posted free cash flow of $289 million for the quarter.

Shareholders are paid a small 0.6% dividend. The $42 Merrill Lynch price target compares with the posted consensus target of $39.05. Shares closed Thursday at $33.62.

Royal Gold

This is 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 2017 forecast for the company was lowered back in January, and Merrill Lynch feels the stock is very undervalued when compared to sector peers. The forecast is 38% revenue growth by 2019 for estimated earnings. The analysts also think the company’s rising cash-flow can be used for acquisitions and growing the dividend.

The Merrill Lynch price target is a whopping $92.50. The consensus target is $84.13, and shares closed Thursday at $67.15.

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 in to correction or bear market mode, as they tend to trade inverse to markets.