Investing

Oil and Gold Stocks Jump Higher as US Targets Iranian General

Lee Jackson

Published: January 3, 2020 10:05 am

Last Updated: January 30, 2020 11:37 am

Just when everybody was confident that 2020 could be a 2019 replay, as a 330-point rise in the Dow Jones industrial average kicked off the year, the U.S. military killed two high-profile commanders of Iran’s secretive Quds Force, the U.S. Defense Department said late Thursday.

Qassim Suleimani, a commander of Iran’s military forces in Iraq, Syria, Lebanon and elsewhere throughout the Middle East, was targeted in a U.S. drone strike. In addition, Abu Mahdi al-Muhandis, said to be the deputy of the militias known as the Popular Mobilization Units and a close adviser to Suleimani, was also killed in the airstrike near Baghdad’s airport, according to Iraqi television reports.

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While the stock market is poised for a bad end to the week, both gold and oil are skyrocketing higher on the global tension. We have noted recently that oil stocks, which lagged the market badly in 2019, and gold stocks could jump back into favor with any sort of geopolitical increase in tension, and the prospect of conflict with Iran is the ultimate tail risk for investors.

Oil Stocks

Recently we highlighted undervalued oil stocks, and these four are incredible values for investors looking to add energy exposure now.

Exxon Mobil

This is America’s largest oil company by market value, but the $300 billion market cap is way down from its glory days and is now only about 15% of Saudi Aramco’s. Exxon Mobil Corp. (NYSE: XOM) is also valued at close to 21 times a mix of expected 2019 and 2020 earnings, with roughly a 5% dividend yield. Up by a paltry 1% in 2019, the consensus price target of $78.36 implies upside of almost 12% from its current $70 share price, but its 52-week trading range of $64.65 to $83.40 shows how challenged it has been. Merrill Lynch is still incredibly positive about Exxon, and the stock is one of the top 2020 picks. The shares closed Thursday at $70.90.

Royal Dutch Shell

The Anglo-Dutch supermajor integrated oil company said last year that it plans to become the world’s largest electricity producer by the early 2030s. The trick, of course, will be to replace a massive oil and gas business by acquiring scalable projects and companies to replace fossil-fuel revenues. Royal Dutch Shell PLC (NYSE: RDS-A) has a hedge, of course: its production in the Permian Basin has risen by 80% this year and it is currently negotiating with privately held Endeavor Energy to acquire another 64,000 barrels a day of production. Sporting a 5.35% dividend, the stock closed Thursday at $59.74.

Occidental Petroleum

Occidental Petroleum Corp. (NYSE: OXY) is the poster child for energy’s bad year. The company’s $40 billion buyout of Anadarko sliced more than 40% from its share price last year. Warren Buffett put up $10 billion to help Oxy get the deal done and, in addition to 100,000 preferred shares with an 8% coupon, he received an option to buy 80 million ordinary shares at $62.50. With the stock now trading at around $42 a share, and a consensus price target of $50.36, the implied upside is around 32%, just over half the upside if shares reach Buffett’s strike price.

Oxy’s capital spending last year was right around $7.5 billion. The company is expected to cut that to $5 billion in 2020, nearly enough entirely to fund the company’s current $3.16 annual dividend. That said, there was a thought after the merger’s closing that perhaps Occidental should have just tried to give Anadarko back to its shareholders. The shares closed Thursday at $42.58.

Parsley Energy

With a market cap of less than $6 billion, Parsley Energy Inc. (NYSE: PE) is considerably smaller than the other oil companies in this list, but it also has the distinction of having added 10% to its market value last year. In October, Parsley announced a $2.27 billion acquisition of Jagged Peak Energy, like Parsley a significant player in the Permian Basin. The deal is expected to close in the first quarter, and Parsley is expected to reduce capital spending by 14% this year while raising production by 10%. At a recent price of $19.17 per share and a consensus price target of $24.26, the implied upside in Parsley’s stock is substantial.

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Why Battered Oilfield Services Stocks Could Be Big 2020 Winners

Gold is powering higher on the volatility and the potential for a violent confrontation in the Middle East. We recently screened the RBC gold stock universe looking for those that are rated Outperform and are still offering investors solid upside potential and as a possible portfolio hedge. We found three solid choices.

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Agnico Eagle Mines

This is one of Wall Street’s most preferred U.S. 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.

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.

Shareholders receive just a 0.86% dividend. The RBC price target at $74 and the Wall Street consensus target is $65.77. The stock closed Thursday at $60.81.

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), Namibia (Otjikoto) and Mali (Fekola).

The company has stated that in 2019, based on current assumptions, consolidated gold production is forecast to be between 935,000 and 975,000 ounces, with cash operating costs projected to be between $520 and $560 per ounce, and all-in sustaining costs estimated to be $835 to $875 per ounce.

In addition, 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 RBC price target is $6 Canadian, or about US$4.53. The posted consensus target is $3.50. Shares closed Thursday trading at $3.93.

Wheaton Precious Metals

This precious metals company 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 1.21% dividend. The $34 RBC price target compares with the $32.96 consensus target. The stock closed most recently at $18.82.

The bottom line for investors is the situation in the Middle East could explode, or it could die down quickly. Iran has faced numerous internal pressures as disgruntled citizens have protested throughout the fall and into the winter. President Trump has stated on numerous occasions he has no desire to continue the endless wars in the region. For the time being though, an oil or gold trade, or a combination, could be a solid short-term and long-term idea, especially with the stock market fully valued.