It seems cliché to say that we live in a dangerous world, but the fact of the matter is we do. With new unrest in the Middle East between Saudi Arabia and Iran, and the ongoing bellicose rhetoric from the North Korean leader, the potential for a battlefield flare-up becomes ever more possible. While it would seem that any conflict would be confined to a regional spat, the mere possibility of hostilities should be a warning sign to investors.
With the potential for conflict, and the fact that markets across the globe are trading at all-time highs, some portfolio insurance now just makes sense, and owning gold-mining stocks and royalty companies are a solid hedge. One company that does a superb job covering the sector is RBC. We screened its gold and silver research universe and found four companies rated Outperform that make sense now.
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 reported earnings for the third quarter that were in line with the Wall Street consensus. The company maintained its 2017 operating guidance and highlighted solid progress at achieving its 20-20-20 strategy. Goldcorp also bumped up reserves 26% to 53.5 million ounces with increases from Century of 4.7 million ounces and Cerro Casale and Caspiche providing 13.3 million ounces.
Shareholders receive just a 0.61% dividend. The RBC price target for the stock is $18, and the Wall Street consensus target is $16.93. The shares closed Thursday at $13.38.
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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.
Kinross recently announced that it will proceed with the Tasiast Phase Two and Round Mountain Project W projects. At full production by 2020, CEO Paul Rollinson sees these two projects stabilizing the company’s gold equivalent output in the 2.5 million ounce range. Trading at a discount to the peer producers, some believe that this valuation gap could be closed due to these projects.
RBC has a $5.25 price objective, near the consensus estimate of $5.21. Shares close trading on Thursday at $4.37.
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.
Many on Wall Street feel that the company is very undervalued when compared to its sector peers. Backed by three new or expanding assets, Royal Gold’s revenue could grow by 13% to nearly $500 million by fiscal 2019. Royal Gold’s strong liquidity position also means it can compete for royalty and stream acquisitions.
For first quarter of fiscal 2018, the company reported earnings per share that were better and expected. The revenue figure was helped by several assets that performed better than expected. Thanks to strong free cash flow and $800 million available under its revolver, Royal Gold has the liquidity to pursue new deals.
Investors receive a $1.10% dividend. Oddly, the RBC price target is $89, while the consensus target is $94.25. Shares closed Thursday at $87.59.
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Wheaton Precious Metals
This is another precious metals company that makes good sense for more conservative accounts looking for exposure to the sector. Wheaton Precious Metals Corp. (NYSE: WPM) is a Canadian precious metals streaming company with approximately 60% of its revenues from the sale of silver and 40% from gold.
Under the terms of long-term contracts, the company purchases silver and gold from a variety of mines, including Goldcorp’s Penasquito mine in Mexico, Vale’s Salobo mine in Brazil, Lundin Mining’s Zinkgruvan mine in Sweden and Glencore’s Antamina and Yauliyacu mines in Peru, then sells the silver and gold into the open market.
Back in the summer, the company increased the dividend to shareholders to 30% of operating cash flow. Based on the new policy, the third-quarter dividend payout was $0.10 per share, up 43% from the second-quarter dividend. Between cash and the revolver, the company has liquidity of around $1.12 billion to acquire new streams and interests.
Shareholders receive a 1.91% dividend after the hike. The $25 RBC price target compares with the consensus target of $20.91. Shares were last seen trading at $20.91, in a 52-week range of $16.94 to $24.97.
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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 in to correction or bear market mode, as they tend to trade inverse to markets.
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