Gold is an excellent portfolio hedge due to its low correlation with equities. It also offers protection against inflation, stability during uncertain times, and a psychological wealth effect. The inverse relationship to the US Dollar adds to its appeal as a diversification asset.
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What are Gold Stocks?
Gold stocks are publicly listed companies active in the gold sector. They are primarily involved in the exploration, extraction, and refining of gold. The recent adoption of AI has opened the path for service companies that use AI to discover deposits. Gold storage companies offer an alternative to direct gold exposure. Still, investors should focus on exploration, extraction, and refining of gold via established and junior gold miners.
Why Should You Consider Investing in Gold Stocks?
Gold has always fascinated as a wealth and status symbol, but gold stocks offer several benefits, and investors should consider adding them to their portfolios. Gold outperforms during economic uncertainty and geopolitical events, providing downside protection for equity portfolios. Gold stocks also offer an inflation hedge and outperform during periods of US Dollar weakness.
Here are a few things to consider when evaluating gold stocks:
- Invest in a combination of established gold miners for stability and dividends, and junior miners, which carry greater risks but offer notable upside potential.
- Analyze gold reserves of gold miners to gauge the longevity of their operations.
- Focus 75% of your portfolio on gold stocks with mining operations in the top ten countries for gold production, with the remaining 25% on exciting global projects.
What are the Downsides of Gold Stocks?
Volatile gold prices pose the most notable risk, as they directly impact the profitability of gold stocks. While the last three years have witnessed high gold prices and all-time highs, which encouraged exploration and higher dividend yields, other periods have seen depressed prices. Long-term, gold is likely to march higher as the current global economic and political landscape faces graver risks than at any point in the past 70 years.
Here is a shortlist of currently attractive gold stocks:
- SSR Mining (SSRM)
- Agnico Eagle Mines (AEM)
- Newmont Corporation (NEM)
- Franco-Nevada Corporation (FNV)
- Triple Flag Precious Metals (TFPM)
Update on my Previous Best Gold Stocks to Buy Now
In our previous installment, I highlighted the upside potential of SSR Mining and Agnico Eagle Mines.
SSR Mining (SSRM) - A long position in SSRM between $20.61 and $21.86
SSRM has rallied by over 14%, and I keep my long position, but I have set my stop-loss at 22.25 for a minimum profit of over 12%.
Agnico Eagle Mines (AEM) - A long position in AEM between $163.40 and $174.67
AEM is up almost 7% since I took my long position, and I will keep holding it, as I see more upside potential.
Newmont Corporation Fundamental Analysis
Newmont Corporation (NEM) is the largest gold mining corporation globally by volume and market capitalization, with gold mines in Argentina, Australia, Canada, the Dominican Republic, Ghana, Mexico, and the US. It is also a member of the S&P 500.
So, why am I bullish on NEM at current levels?
Despite its ongoing bullish trend, Newmont Corporation’s valuations are a bargain. I am bullish on NEM, as it has a low All-In Sustaining Cost (AISC) of $1,566 per ounce for gold. Its pledge to low-carbon mining practices will give it an edge in a regulatory environment that is tightening the rules, and NEM maintains superb operational metrics, with a history of share buybacks and special shareholder payouts.
Metric | Value | Verdict |
P/E Ratio | 14.08 | Bullish |
P/B Ratio | 2.97 | Bearish |
PEG Ratio | 1.94 | Bullish |
Current Ratio | 2.04 | Bullish |
Return on Assets | 13.14% | Bullish |
Return on Equity | 21.63% | Bullish |
Profit Margin | 33.42% | Bullish |
ROIC-WACC Ratio | Positive | Bullish |
Dividend Yield | 1.22% | Bearish |
Newmont Corporation Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 14.08 makes NEM an inexpensive stock. By comparison, the P/E ratio for the S&P 500 is 30.61.
The average analyst price target for NEM is $103.57. This suggests reasonable upside potential with manageable downside risks.
Newmont Corporation Technical Analysis
Newmont Corporation Price Chart
- The NEM D1 chart shows price action breaking out above its ascending 50.0% Fibonacci Retracement Fan level.
- It also shows Newmont Corporation advancing inside a bullish price channel.
- The Bull Bear Power Indicator is bullish with an ascending support line.
My Call on Newmont Corporation
I am taking a long position in NEM between $89.20 and $93.98. I am bullish on its low AISC, excellent operational metrics, and growth outlook.
- NEM Entry Level: Between $89.20 and $93.98
- NEM Take Profit: Between $117.81 and $123.70
- NEM Stop Loss: Between $76.05 and $80.49
- Risk/Reward Ratio: 2.18
Franco-Nevada Corporation Fundamental Analysis
Franco-Nevada Corporation (FNV) is a gold-focused royalty and streaming company with cash-flow producing assets across dozens of global gold assets. It is also a member of the S&P/TSX 60.
So, why am I bullish on Franco-Nevada Corporation at current levels?
I am bullish on Franco-Nevada Corporation following its expansion of its royalty portfolio through recent acquisitions and strategic partnerships, as well as its strong momentum. FNV maintains a well-diversified asset portfolio and an excellent balance sheet. It is a perfect fit for any gold portfolio, as it does not operate mines. Its cash levels allow it to resume its business model with limited operational risk, and its bear-market resilience is a bonus.
Metric | Value | Verdict |
P/E Ratio | 43.47 | Bearish |
P/B Ratio | 5.71 | Bearish |
PEG Ratio | 3.58 | Bearish |
Current Ratio | 4.64 | Bullish |
Return on Assets | 12.24% | Bullish |
Return on Equity | 13.14% | Bullish |
Profit Margin | 59.48% | Bullish |
ROIC-WACC Ratio | Positive | Bullish |
Dividend Yield | 0.81% | Bearish |
Franco-Nevada Corporation Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 43.47 makes FNV an inexpensive stock. By comparison, the P/E ratio for the S&P 500 is 30.61.
The average analyst price target for Franco-Nevada Corporation is $228.67. This suggests reasonable upside potential with acceptable downside risks.
Franco-Nevada Corporation Technical Analysis
Franco-Nevada Corporation Price Chart
- The FNV D1 chart shows price action breaking out above its ascending 61.8% Fibonacci Retracement Fan level.
- It also shows Franco-Nevada Corporation breaking out above its horizontal support zone.
- The Bull Bear Power Indicator is bullish with an ascending trendline.
My Call on Franco-Nevada Corporation
I am taking a long position in Franco-Nevada Corporation between $202.77 and $208.86. I am bullish about its well-diversified asset portfolio.
- FNV Entry Level: Between $202.77 and $208.86
- FNV Take Profit: Between $264.15 and $272.07
- FNV Stop Loss: Between $173.39 and $178.01
- Risk/Reward Ratio: 2.09
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