Commodities & Metals

It’s Not Too Late to Buy Gold in Case the Market Totally Crashes

Lee Jackson

Published: December 7, 2018 7:10 am

Last Updated: January 11, 2020 2:02 pm

It is very possible that all the major market indexes could end down in 2018, and that is a very difficult spoon of medicine to swallow for investors used to a quantitative-easing-rich, low-interest rate backdrop that for years has driven equity prices higher. The problem is, many investors have not seen a true bear market since 2008 and 2009, almost 10 years ago. Those who are used to the sugar-high gains may be in for an algorithm, margin-call-selling spree that will make this year look good.

One thing to do now with the end of the year closing in is to take some gains, or in some cases cut some losses, and add a position in gold to help protect against a total market collapse. Gold remains a hard asset that people trust when things get truly ugly.

We screened the Merrill Lynch research database and found four stocks rated Buy that could be great additions now.

Goldcorp

This top company with a solid balance sheet makes sense for investors to consider now. 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.

Shareholders receive just a 0.57% dividend. The Merrill Lynch price target for the shares is $13, and the Wall Street consensus target is $13.88. The shares closed Thursday at $9.45 apiece.

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.

Last year Newmont announced that “first gold” has been poured at its new mine, called the Merian gold mine, in Suriname in South America. It 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.

Newmont has indicated that it could increase the dividend this year by at least 50%. Merrill Lynch feels the miner has sufficient free cash flow to pay higher dividends and continue reducing debt and investing in projects. The stock is down almost 16% from the close on March 9 of 2009.

Shareholders are paid a 1.75% dividend. Merrill Lynch has a $43 price objective, and the consensus target price is $40.83. The shares closed at $32.66 on Thursday.

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.

Shareholders receive a 1.42% dividend. The $93.50 Merrill Lynch price target compares with the $91.32 consensus target and the most recent close at $75.83 per share.

Proper asset allocation should always include a single-digit percentage holding of precious metals like gold and silver. Not only do they hedge inflation over the long term, but they can really help if the market does go into correction or bear market mode, as they tend to trade inverse to markets.