Commodities & Metals

Money Pours Into Gold as Tensions Rise: 4 Top Picks for the Rest of 2017

Lee Jackson

Published: August 23, 2017 8:40 am

Last Updated: January 12, 2020 8:53 am

The constant volley of threats between Washington, D.C., and North Korea is apparently starting to wear on investors’ nerves, as last week over a half billion dollars flowed back into the precious metal. There may be more of that to come, as even though gold is up 12% this year, the sector has seen outflows since the beginning of the year of $755 million, which represents 2.5% of assets.

The bottom line for investors is there are only a few safe havens to hide in when things get dicey, and at this juncture, U.S. Treasury debt is trading at almost the highest levels of 2017 and hardly makes sense with yields still near generational lows.

What does make sense is a percentage of gold in portfolios, so we screened the Merrill Lynch research database for Buy-rated stocks that look solid now. We found four that look like good plays for the rest of the year.

Agnico Eagle Mines

This is one of Wall Street’s most preferred U.S. gold producers. 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 reported strong second-quarter results that came in above estimates on the top and bottom line. Revenue was more than 2% than in the year-ago quarter.

Shareholders of Agnico Eagle Mines are paid a small 0.9% dividend. The Merrill Lynch price target for the stock is $56, and the Wall Street consensus target is $56.06 a share. The stock closed trading on Tuesday at $46.86 per 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.

Goldcorp also posted solid second-quarter results, and the analysts said this at the time:

Goldcorp reported second quarter adjusted earnings-per-share of $0.12, above ours and consensus at 8 and 9 cents. Gold sales were higher than forecast. For 2017 Goldcorp maintained its gold output guidance of 2.5 million ounces but the company lowered AISC by 3% to $825/oz. Due to lower capital spending, our analysis indicates the company will be free-cash-flow positive in 2017. Maintain Buy on undervaluation.

Goldcorp investors are paid a 0.6% dividend. Merrill Lynch has set its price target at $20, and the posted consensus target was last seen at $16.83. The shares ended Tuesday’s trading at $12.91 apiece.

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Newmont Mining

This is one of the largest mining companies, and its stock is 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.

Earlier this year the company announced 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 also posted strong results, and the analysts said:

Newmont reported second quarter adjusted earnings per share of $0.46 that was a big beat versus our numbers and consensus both at $0.26. 2017 operating guidance was increased to 5.00-5.40 million ounces and CAS and AISC unit cost guidance were both lowered. Net debt continued to decline, down to $1.52 billion as of June 30, 2017; net debt has been reduced by 70% since 2013.

Newmont shareholders are paid a 0.82% dividend. The $47 Merrill Lynch price objective for the shares compares to the posted consensus price target of $40.47. The shares were last seen trading at $36.50 apiece.

Royal Gold

This a solid pick 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. It maintains a solid asset base of long-life royalties operated by some of the best gold mining companies in the world. The company owns interests on 193 properties on six continents, including interests on 38 producing mines and 24 development stage projects.

Merrill Lynch feels the company is very undervalued when compared to its sector peers. Backed by three new or expanding assets, the firm sees Royal Gold’s revenue growing by 13% to nearly $500 million by fiscal 2019. Royal Gold’s strong liquidity position means it can compete for royalty and stream acquisitions.

The Merrill Lynch price target is a whopping $99. The consensus target is $89.32, and the stock closed most recently at $86.77 a share.

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, but they can really help if the market does go in to correction or bear mode, as they tend to trade inversely to markets.