Tension With China on the Rise: Gold Stocks to Buy Now to Hedge Downside

Just when it appeared that things were looking up for investors, the rift with China seems to be widening fast. The ongoing disagreements over the origin of the COVID-19 virus are now starting to take a back seat to the rising tensions in Hong Kong. China’s passage of a national security law for the city is the latest sign that the 50-year “one country, two systems” arrangement that allowed Hong Kong to keep its own legal, financial and trade regimes is perishable.

That is not sitting well with the United States at a time when our relations with China have suffered a deep fracture over the coronavirus. It was generally accepted that President Donald Trump would approve a “variety” of sanctions, potentially on both Chinese and Hong Kong officials, in response to China’s national security law for Hong Kong. While in a press conference on Friday the president remained committed to the trade pact, you can bet this will not just blow over.

Heightened global tensions, the continuing coronavirus worries and the civil unrest around the nation after the incident in Minneapolis could send investors back to their respective bunkers. With many now recouping some of the huge losses suffered earlier this year, they may be ready to head for the sidelines, as sell in May and go away may become sell in June and make it soon.

Gold essentially has traded sideways since the middle of April, and investors have the chance to step in now before a breakout move higher. We screened the BofA Securities precious metals research universe and found five gold stocks rated Buy that look like solid plays for investors starting to worry about renewed volatility.

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Agnico Eagle Mines

This is one of Wall Street’s most preferred North American gold producers. Agnico Eagle Mines Ltd. (NYSE: AEM | AEM Price Prediction) 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’s Meadowbank complex in Nunavutis is expected to achieve commercial production very soon, and the Amaruq project was expected to ramp up to full production by late last year. 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.

Shareholders receive a 1.25% dividend. The BofA Securities price target on the shares is $72, and the Wall Street consensus target is $64.33. Agnico Eagle Mines stock closed Friday’s trading at $64.00.

B2Gold

This is a small-cap gold stock for aggressive investors looking for sector exposure. B2Gold Corp. (NYSE: BTG) is a global, growth-oriented mid-tier gold producer whose primary assets include gold mines located in Nicaragua (La Libertad and El Limon), the Philippines (Masbate) and Namibia (Otjikoto) and Mali (Fekola).

The company recently announced positive drill results from the Mamba zone, which is located within the Anaconda area approximately 20 kilometers from the Fekola Mine, as well as positive infill drill results from the Fekola mineral resource area and step out results north of the Fekola resource.

The company posted strong first-quarter results, and the analysts said this:

B2Gold delivered a strong first quarter earnings result and ended the quarter with net debt of just $17 million, down 86% from year-end 2019. The quarterly dividend was doubled to $0.02 per share, good for an annualized yield of 1.5%; substantial 2020 cash flow is expected. Due to core mine outperformance, 2020 guidance was reiterated despite that the Nicaraguan assets could remain suspended.

BofA Securities has a $6.40 price target, while the consensus target is at a much lower $3.50. The last B2Gold trade Friday hit the tape at $5.48.

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This off-the-radar stock offers investors solid upside potential. Kirkland Lake Gold Ltd. (NYSE: KL) is a Canadian domiciled gold producer with three cornerstone operating mines located in Canada and Australia: Detour Lake, Fosterville and Macassa. It also owns and operates the Holt Complex, which includes three wholly owned mines and several assets in the Northern Territory of Australia.

In 2019, the company produced 974,615 ounces of gold at operating cash cost and all-in sustaining cost of $284 and $564 per ounce, respectively. That compares nicely with the current spot price of $1,728.

First-quarter results were solid, and the analysts noted:

Kirkland Lake Gold reported adjusted earnings per share of $0.70, in line with BofA. Free cash flow was $143 million in the first quarter of 2020. The company repurchased 9.7 million shares for $330 million in the first quarter. On the Q1 earnings call, CEO Makuch noted that Detour Lake and Macassa are ramping up. 2020 guidance will be reinstated later this year. Kirkland Lake has withdrawn 3 year guidance as it assesses the longer term impacts of COVID-19. Expect it back in the fourth quarter. Maintain Buy.

Investors receive a 1.30% dividend. BofA Securities has set a $50 price target. A consensus target was unavailable. Kirkland Lake Gold closed most recently at $38.46 a share.

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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.

This company reported solid results too, and the analysts said this:

Wheaton Precious Metals reported adjusted earnings per share of $0.215 in Q1, in line to BofA and Consensus. Cash flow was +50% year-over-year to $177 million ($0.40/sh). On April 2 the company withdrew guidance due to six mines being temporarily suspended due to COVID. Restarts could begin on May 30th. Wheaton is trading at a 27% discount (on Price to NAV) to its peers. Based on its growth, we believe the company should trade in line.

Shareholders receive a 0.92% dividend. The $47 BofA Securities price target compares to the $39.39 consensus target. Wheaton Precious Metals stock was last seen trading at $43.00.

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Remember that 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, they can really help if the market does go back into correction or bear market mode, which is where we could be poised to go now. Gold tends to trade inverse to markets trading down.