February 21, 2023 (Investorideas.com Newswire) While gold has historically been used as an inflation hedge, the inflationary period over the last 12 months has run contrary to history. More recently, the gold price has been tumbling, although you don’t have to actually buy the yellow metal to get exposure to it.
Gold stocks can be a nice addition to any portfolio. However, it’s important to remember that gold stocks are still stocks, so additional diversification is needed to protect against inflation and other macroeconomic factors. Here are some of the best gold stocks to consider adding to your portfolio.
No discussion of gold stocks would be complete without Barrick Gold. A miner of both gold and copper, Barrick operates 16 sites in 13 countries. The stock is flat year to date with a 52-week high of around $26 and a 52-week low around $13, indicating its relative stability compared to the rest of the market, which is critical at such a time as this, when volatility has gripped the markets for months.
One piece of Barrick Gold’s stability is its tremendous free cash flow generation. In fact, the company enjoys a growth rate of about 49% for its free cash flow over the last three years, putting it ahead of more than 90% of other gold miners. Barrick Gold’s book rate has grown 25% over the last three years, which is also significantly higher than the industry average.
Free cash flow is essential for gold miners for several reasons. Cash enables them to purchase new assets, clean up their balance sheets, pay more in dividends or repurchase shares, and improve their positioning for future swings in the gold price.
Unfortunately, Newmont is down by about 5.5% year to date and has been underperforming the broader gold mining industry. However, this underperformance could offer a buying opportunity.
The market may be reacting to Newmont’s all-stock bid to purchase Australian miner Newcrest Mining for $4.8 billion. If Newmont can seal the deal, it would be just the latest in a wave of consolidation that’s been sweeping the gold mining sector.
While Newmont is the largest gold miner in the world, it also mines silver, copper, lead and zinc. The Newcrest acquisition would boost the company’s position in copper mining, which is becoming more and more important amid the rapidly growing market for renewable energy and electric vehicles.
Like Barrick Gold, Newmont also enjoys robust free cash flow, with a growth rate of about 30%, being more than 76% of the industry.
Shares of Canadian miner Centerra Gold have surged more than 20% year to date in New York and more than 18% in Toronto. Despite the skyrocketing price in 2023, Centerra shares are off by 25% in New York and 21% in Toronto over the last 12 years.
While the stock was in oversold territory for quite some time, its relative strength index is at 57, well above the threshold of 30, which indicates oversold status on a stock. Unfortunately, Centerra Gold lost money over the last two reported quarters, which could be why the market punished it so much over the last 12 months. However, the company still has an attractive P/E ratio of about six times.
Despite its sizable earnings miss in the June 2022 quarter, the company has a solid track record of earnings and revenue beats, making its upcoming earnings release on Feb. 23 a potential catalyst for the stock.
Franco-Nevada differs from most of the companies on this list because it’s a royalty and streaming company focused on gold. Gold royalties are contracts that give a company the right to a percentage of the gold production or revenue. In exchange, the royalty company makes an upfront payment. By purchasing these contracts, royalty companies actually finance gold miners as they develop assets, benefiting both companies.
In New York, shares of Franco-Nevada are down 2% year to date and off by nearly 6% for the last 12 months. Meanwhile, Toronto-listed shares have fallen more than 4% year to date, resulting in a 12-month decline of 1%.
Franco-Nevada offers stability to investors and doesn’t get a lot of coverage, potentially making it a hidden gem for some. However, investors might want to wait for a slightly better entry point if they don’t already own shares.
Agnico Eagle Mines
This gold miner explores and develops assets in the U.S., Canada and Mexico. On one hand, it’s slightly riskier than some of the other names on this list due to its valuation and elevated P/E ratio, but on the other, it has quite a solid track record. Agnico Eagle Mines handily beat earnings-per-share estimates for the last three reported quarters. With a stable balance sheet, the company has shifted from a loss-making position to one of profitability.
The company’s New York-listed shares are down 5% year to date, resulting in a 12-month decline of nearly 3%. Meanwhile, in Toronto, Agnico Eagle Mines is off by 7% year to date capping its 12-month return at nearly 2%. More impressively, the company’s New York shares have returned 35% for the last five years, commending it as potentially a long-term, buy-and-hold position.
Finally, Agnico Eagle Mines offers an attractive dividend yield of 3.13%, making it a solid addition to any income-stock portfolio.
Of course, there are many other gold stocks to choose from, so these are just some of the largest. Every investor is advised to do their due diligence before making any purchases.
Author bio: “Jacob is the founder and CEO of ValueWalk, a financial information company. He also has experience working in business development, digital marketing and business operations. Jacob lives with his wife and five kids in Passaic, N.J. New Jersey.
Full Disclosure: I only invest in broad-based ETFs and mutual funds. I no longer purchase equities to avoid even the appearance of a conflict of interest.”
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