It’s no secret that gold stocks have been under serious fire again since late January.
But the fact that the current gold price is the same one we saw in September of last year, in December of 2013 and in June of 2013 serves as a nice reminder that the gold bears haven’t actually made any net progress in a long while.
The only gold “trade” worth taking on during this time has been a play on the commodity’s volatility, which is a two-way street.
With that as the backdrop, the recent sharp drop in gold prices may not only be an opportunity to wade into beaten-down gold stocks at short-term lows, it may even be an opportunity to get into undervalued gold names for the long haul.
Here are five gold stocks to consider — as trades or investments, or maybe even both.
Gold Stocks to Buy — Yamana Gold (AUY)
It takes guts to plan new capital outlays for upped production of gold when your gold mining peers are looking for ways to cost-effectively contract until commodity prices improve. But, the upsides of doing so can be tremendous.
The negotiated costs of such projects — their purchase as well as their ongoing operating costs — tend to be made on very favorable terms when competition for these projects is tepid.
Enter Yamana Gold Inc. (USA) (NYSE:AUY). Rather than looking for ways out of its obligations, Yamana Gold is boldly forging ahead with its plans to develop a gold and silver mine at Cerro Moro, in Argentina.
Though they’re just estimates, Yamana foresees an internal (post-tax) rate of return of somewhere around 25% for the Cerro Moro project within three years of the initial expenditure, based on gold prices of $1265 per ounce and silver prices of $17.60 per ounce. Any gold or silver prices in excess of those numbers will exponentially improve the profitability of the project for Yamana Gold.
Gold Stocks to Buy — Barrick Gold (ABX)
When gold prices are sky high, cost control isn’t a big concern. When gold prices are suppressed — as they are now — the ability to control costs becomes immensely important. And, one of the best cost-control names in the gold mining business is Barrick Gold Corporation (USA) (NYSE:ABX).
Per the company’s earnings report and related press release posted Wednesday evening, Barrick Gold incurred an all-in sustaining cost of $869 per ounce in 2014, and foresees an all-in cost of somewhere between $860 and $895 per ounce for 2015.
That cost is one of the best (maybe the best) in the industry, meaning Barrick Gold Corporation has a relatively solid ability to remaining profitable no matter how weak gold prices get.
Gold Stocks to Buy — Goldcorp Inc. (USA) (GG)
Yes, Goldcorp Inc. (NYSE:GG) missed last quarter’s earnings estimates — badly. The miner posted a loss of $2.94 per share in its fourth quarter, which was more than twice the $1.34 per share loss it suffered in Q4 of 2013. The bulk of the setback stemmed from a one-time impairment charge.
Taking that out of the equation, Goldcorp managed to post an operating profit of 7 cents per share, versus a profit of 9 cents per share of GG stock in the same quarter a year earlier — an impressive feat given the recent weakness in gold prices. Gold output actually increased by 15% on a year-over-year basis.
The market wasn’t impressed by any of the encouraging details, however, letting GG stock tumble more than 8% in the wake of the news…. a tumble the stock didn’t deserve to take.
On the other hand, that undeserved 8% tumble means Goldcorp shares are more ripe for a rebound than other gold stocks at this point.
Gold Stocks to Buy — AngloGold Ashanti (AU)
AngloGold Ashanti Limited (ADR) (NYSE:AU) is anything but a pure gold play. It also has silver, uranium oxide and mines for other materials. Some of those materials are extracted via underground mines, while others are produced in open-pit operations.
AU also has metallurgical plans established all over the world. Meaning, AngloGold has a lot of diversity that many gold stocks probably wish they had.
What’s really most compelling about AU stock, however, is how well it’s successfully cutting down its debt.
Chief Executive Officer Srinivasan Venkatakrishnan explained when the previous quarter’s numbers were released in November:
“We’ve prioritized and have started working on a range of self-help measures to generate cash from within the current operating base to further deleverage the balance sheet over the medium term. We will also consider the sale or partnership of an operating asset, if required.”
AngloGold’s goal at the time was to cut its balance sheet’s debt by $1 billion (versus total long-term debt of $3.5 billion. It’s an effort that will pay off on the long run, but could also be bullish for AU stock in the near-term.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
