Commodities & Metals

JPMorgan Has Major Reasons to Buy 5 Top Gold Stocks Now

Lee Jackson

Published: March 30, 2017 8:35 am

Last Updated: January 12, 2020 1:28 pm

Things were really chugging along for President Trump and the new administration until they hit a massive speed bump. The inability to repeal and replace Obamacare the first time around sent a big signal to the markets — a signal that political instability in the United States combined with the Brexit and other eurozone elections, on top of the possibility for currency risks around the globe, make instability a distinct possibility.

In a new research report, JPMorgan, while not expecting any huge breakout in the price of gold, like other firms on Wall Street, does think the floor is in. The firm also feels that owning the right companies makes sense given the current global environment. The report noted this:

We believe gold has attractive investment appeal as a hedge against inflationary surprises, compressed real rates and “black-swan” type political risks. Yet a flat gold outlook diminishes the rationale for owning leveraged equities.

It went on to list three specific qualities JPMorgan is looking for in top stocks to own:

1. Stock specific equity rerating catalysts
2. A credible road map to grow exposure to the gold price and grow shareholders returns in a flat gold price environment
3. Attractive valuation support

Five gold stocks are rated Overweight at JPMorgan.

Agnico Eagle Mines

This top stock is JPMorgan’s most preferred U.S. gold producer. 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. Top analysts feel that the company’s ambitious plans for 2020 are achievable.

Shareholders receive a 0.9% dividend. The JPMorgan price target for the stock is $60, and the Wall Street consensus target is $51.75. The shares closed Wednesday at $43.16.

Gold Fields

This small cap company provides more aggressive accounts a lower price to add more shares. Gold Fields Ltd. (NYSE: GFI) produces gold and holds gold reserves in South Africa, Ghana, Australia and Peru. It engages in underground and surface gold and surface copper mining and related activities, including exploration, extraction, processing and smelting.

The company holds interests in eight operating mines with an annual gold production of approximately 2.16 million ounces, as well as mineral reserves of approximately 46 million ounces and mineral resources of approximately 102 million ounces. It also produces copper in Peru and holds attributable copper mineral reserves totaling 532 million pounds and mineral resources totaling 910 million pounds.

JPMorgan has a $5.36 price target. The consensus target is $3.76, and shares closed Wednesday at $3.60.

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 some on Wall Street reduced estimates for 2017 and 2018 recently, most are 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 receive a 0.55% dividend. The $22 JPMorgan price target compares with the consensus target of $18.17. Shares closed Wednesday at $14.91.

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 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.

Newmont 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 Wall Street consensus estimates. 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.

JPMorgan has its price target set at $43. The consensus target is $39.05, and shares closed Wednesday at $33.19.

Randgold Resources

This company has remained a top pick at JPMorgan for years. Randgold Resources Ltd. (NASDAQ: GOLD) explores for and develops gold deposits in sub-Saharan Africa. It holds interests in the Morila, Loulo and Gounkoto gold mines, which are located in Mali, West Africa, as well as the Tongon mine, situated within the Nielle exploitation permit in the north of Côte d’Ivoire, and the Kibali mine, located in the Democratic Republic of Congo.

The company increased 2016 production to a new high of 1.25 million ounces to achieve its annual guidance. All the operations contributed to this effort, with its flagship Loulo-Gounkoto complex in Mali posting particularly good results.

Shareholders receive a 1.1% dividend. The JPMorgan price target of $100 compares with the consensus target of $101.98. Shares closed most recently at $87.68.

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 the markets.