The more you listen to the Wall Street pundits, especially those in the financial media, the more they have closed in on the ultimate contrarian indicator. That’s when they present the worst four words in the history of investing: “It’s different this time.” Sure it is, and with the market trading at the highest multiples in years, and the FOMO factor (fear of missing out) driving prices ever higher, you can bet that the much-needed correction, if not here already, is very close.
With the markets facing a “witches’ brew” of potential problems, including the coronavirus, the Senate impeachment trial, ongoing hostility in the volatile Middle East, trade-related issues, and the sheer fact that the stock market is horribly overbought, we could be in the beginning stages of a major shakeout.
One way to hedge a sell-off would be to buy gold, and while the SPDR Gold Shares ETF (NYSE: GLD | GLD Price Prediction) is an outstanding vehicle, as you literally buy physical gold, investors may want to invest in some of the top miners and royalty companies. We screened the Merrill Lynch precious minerals universe looking for companies rated Buy and found five solid choices for investors to go along with the SPDR Gold Shares fund.
Agnico Eagle Mines
This is one of Wall Street’s most preferred North American 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.
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The company’s Meadowbank complex in Nunavutis is expected to achieve commercial production very soon, and the Amaruq project is expected to ramp up to full production by late 2019. Amaruq’s gold output is forecast to rise from 130,000 ounces in 2019 to 351,000 ounces in 2021, and it could account for 17% of Agnico Eagle’s total output.
Agnico Eagle Mines shareholders receive a 1.14% dividend. The Merrill Lynch price target for the shares is $74, and the Wall Street consensus target is $70.39. Shares closed Thursday trading at $61.17.
Barrick Gold
This is one of the top companies in the sector, and shares have backed up from the late summer to early fall rally, offering a solid entry point. Barrick Gold Corp. (NYSE: GOLD) and Randgold Resources completed their merger on January 1, 2019, which created the world’s largest gold company in terms of production, reserves and market capitalization.
On July 1 of last year, Barrick and Newmont created the Nevada Gold Mines joint venture, on a 61.5% to 38.5% basis, with Barrick as operator. The venture is targeting $450 million to $500 million in annual operational and other synergies over the next five years.
Barrick says its gold production for 2019 is expected to come in near the top end of its guidance, while copper production is forecast to be more than earlier expectations. Preliminary results indicate it produced 5.5 million ounces of gold last year, compared with guidance for between 5.1 million and 5.6 million ounces.
Preliminary copper production results indicate it produced a total of 432 million pounds, compared with guidance for between 375 million and 430 million pounds.
Barrick says preliminary fourth-quarter results show sales of 1.413 million ounces of gold and 91 million pounds of copper, as well as fourth-quarter production of 1.439 million ounces of gold and 117 million pounds of copper.
The dividend paid to shareholders has 1.08% yield. Merrill Lynch has a $22 price objective, while the consensus target price is $20.80. Barrick Gold stock closed Thursday at $18.44 per share.
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Franco-Nevada
This off-the-radar play offers numerous ways for investors to make money. Franco-Nevada Inc. (NYSE: FNV) is a resource sector royalty and investment company that was formed to acquire an established portfolio of mining, oil and natural gas royalties and certain equity interests. The royalty assets were spun out of Newmont Mining.
The royalty portfolio represents over two decades of acquisitions by Newmont and the old Franco-Nevada, which Newmont acquired in 2002. Franco-Nevada intends to grow through the advancement of existing properties and through acquisitions and investments.
The company posted solid fiscal third-quarter results, and Merrill Lynch said this at the time:
Franco-Nevada reported third quarter of $0.54/sh, above us and Consensus at $0.44 and $0.45, due in part to a lower than expected tax rate. The company reported record revenue of $235.7 million in the third quarter and above us at $223 million. This was due to higher energy and other metals. Management guided to the upper ends of its prior GEO and energy guidance for 2019.
Investors receive a 0.88% dividend. The $108 Merrill Lynch price target compares with the seemingly absurd $81.27 consensus target, given the most recent close at $113.18.
Newmont
This is another one of the largest mining companies, and it is a solid buy for more conservative accounts. Newmont 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.
In recent years, the company 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.
The analysts noted this about recent very positive news:
In keeping with its capital return objectives, Newmont announced a 79% hike in its quarterly dividend to $0.25, effective the second quarter of 2020. The company has repurchased 12.4 million shares for $506 million, halfway to achieving its $1 billion share repurchase program.
Shareholders receive a 1.25% dividend. Merrill Lynch has set a $52 price objective. The consensus target is $48.62, and Newmont stock closed at $44.97 on Thursday.
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Wheaton Precious Metals
This precious metals royalty stock makes good sense for more conservative accounts looking to have 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, the Lundin Mining Zinkgruvan mine in Sweden, and Glencore’s Antamina and Yauliyacu mines in Peru, then sells the silver and gold into the open market.
Shareholders receive a 1.24% dividend. The Merrill Lynch price target is $38. The consensus target is $35.70, and shares closed most recently at $28.99.
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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.
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