Commodities & Metals

4 Top Gold Stocks Set to Thrive on Dollar Weakness and Global Instability

Lee Jackson

Published: July 21, 2017 8:48 am

Last Updated: January 12, 2020 9:55 am

Despite the fact that economists and politicians like to talk the love for a strong dollar, the fact is they often are thrilled when the dollar weakens. This weakness makes U.S. goods and services cheaper for foreign nations to buy in their own local currency. A weak dollar can also be quite bullish for commodities, and the 8% selloff in the dollar index since the end of 2016 has given gold a nice tailwind.

Gold also loves instability and geopolitical risks. The macro global hot-spots like the Middle East, North Korea, a gridlocked Washington are all supportive of gold. All of this has added up gold making good sense for many investors.

In a new research report from J.P. Morgan, they note both the dollar weakness and the global uncertainties as reasons to own some gold. The firm does also caution that sovereign risks from host countries where mines are located are a factor that simply cannot be ignored. Noting that risk, they say selectivity is important.

We screened the firm’s coverage universe and found four top companies for our 24/7 Wall St. readers to consider. All are rated Overweight by J.P. Morgan.

Agnico Eagle Mines

This top stock is J.P. Morgan’s most preferred U.S. gold producer. Agnico Eagle Mines Limited (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.

Agnico Eagle reported strong first quarter results that included net income of $76 million or 33 cents per share in the first quarter of 2017, compared with net income of $27.8 million or 13 cents recorded in the year-ago quarter. In addition, the company has plans to grow gold output to 2 million ounces by 2020 with new output from the Meliadine and Amaruq mines. The analysts feel that the company’s ambitious plans for 2020 are achievable.

Shareholders are paid a small 0.9% dividend. The J.P. Morgan price target is $60, and the Wall Street consensus is posted at $55.78. The stock closed Thursday at $45.63.

B2Gold

This is a more aggressive small cap play that the J.P. Morgan team is very positive on. B2Gold Corp. (NYSE: BTG) is a global, growth-oriented mid-tier gold producer whose primary assets include four producing gold mines located in Nicaragua (La Libertad and El Limon), the Philippines (Masbate) and Namibia (Otjikoto) as well as the Fekola development project in Mali.

B2Gold has a strong growth story underpinned by its new flagship Fekola mine.
The company is reporting success with its Otjikoto mine in Namibia and expects
Better results from the Fekola mine in Mali in 2018. The company has a track record in finding attractive assets, building the mines on budgets, and protecting local relationships.

The analysts see the company as an up-and-comer in the sector and noted this in their report. Unfortunately the research report does not have a current J.P. Morgan price objective. The Wall Street consensus is posted at $4. The shares closed trading on Thursday at $2.71.

Goldcorp

This is a top company with a solid balance sheet that 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. The company primarily explores for gold, silver, copper, lead, and zinc deposits. Its 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 slight premium valuation to their peers due to its excellent balance sheet, growth profile with lower cost new mines and longer average mine life. Over the past 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. While some on Wall Street reduced estimates for 2017 and 2018 recently, most are positive on the company’s growth strategy where they intend to boost output by 20% and lower AISC or all-in sustaining costs by 20% all by the year 2020.

Goldcorp investors are paid a 0.6% dividend. The J.P. Morgan price target is lowered to $18 from $22, and the consensus is at $17.57. Shares closed Thursday at $13.62.

Newmont Mining

This is one of the largest mining companies, and the top large cap pick at J.P. Morgam. Newmont Mining Corporation (NYSE: NEM) is a leading gold and copper producer. The Company 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 and investors were thrilled this week when the company raised the dividend a solid 50%.

The company announced earlier this year 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.

Newmont Mining reported slightly lower first-quarter net income after operations in Australia and South America were hit by poor weather. The world’s second-biggest gold producer by market value reported net income of $46 million, or 9 cents per share, in the three months to end-March. That compared with $52 million, or 10 cents per share, in the same period a year earlier.

With the recent increase the dividend is now 0.90%. The J.P. Morgan price target is $43 and the consensus is posted at $39.14. Shares closed Thursday at $33.92.

*****

Proper asset allocation should always include a single digit percentage holding of precious metal like gold and silver. Not only can they hedge currency and other risks over the long-term, they can really help if the market does go in to correction or bear market mode.