After soaring above $2000 per ounce in August, gold prices have pulled back. But, that doesn’t mean its time to shun gold stocks.
Why? Well, the main driver of gold prices remains in play. That is to say, the U.S. Federal Reserve stills sees aggressive monetary policy as key to shoring up the novel coronavirus’s economic impact.
Between near-zero interest rates, quantitative easing and other methods, this means the risk of continued devaluation of the U.S. dollar. That said, this bodes well for alternative sources of value such as gold.
But, that’s not all! Other factors, like the specter of another stimulus package, are at play as well.
Also, the contentious U.S. Presidential Election could mean good things for gold prices. Analysts at JP Morgan say gold prices could spike as much as 5% if there’s a “blue wave” (across the board Democratic party victory) on Nov. 3. But, that doesn’t mean a Trump victory means bad news for gold prices.
The factors that pushed investors into gold earlier this year are likely here to stay in the “new normal.” And that bodes well for stocks across the sector.
So, which ones should you consider? Taking a look at the major publicly-traded gold stocks, these five come to mind as solid opportunities:
- Franco Nevada Corp (NYSE:FNV)
- Barrick Gold (NYSE:GOLD)
- Kinross Gold (NYSE:KGC)
- Newmont Corporation (NYSE:NEM)
- Wheaton Precious Metals (NYSE:WPM)
Now, let’s dive in and take a look at each one.
Hot Gold Stocks: Franco Nevada Corp. (FNV)
Interested in gold plays, but don’t like the risks inherent to the mining business? Gold streaming companies like FNV stock may be right up your alley. What’s a gold streaming company? Unlike a traditional miner, streamers front money to miners, in exchange for gold at discounted prices.
That said, Franco Nevada has been in the streaming business since the 1980s. But in 2020, the specter of rising gold prices due to geopolitical and pandemic uncertainty could mean further gains are in the cards. Shares are already up 34% year-to-date, after pulling back in tandem with the recent dip in gold prices.
But, what if gold fails to hit prices above $2000 per ounce in the near-term? Or worse yet, heads lower from here? Downside risk may not be as massive as you think. With zero debt, strong cash flows from streaming and other positives, this is one of the highest quality gold stocks out there.
Granted, like with some of the other names discussed in this gallery, you have to pay up for quality with Franco Nevada. Even compared to its gold streaming rival, Wheaton (more below), shares look richly priced with a forward price-to-earnings (P/E) ratio of 124.
That being said, a rich valuation may not be a major concern if uncertainty fuels another gold rally. Tread carefully, but consider FNV stock a solid play on rising precious metals prices.
Barrick Gold (GOLD)
When selecting gold stocks, quality is key. There are scores of publicly-traded precious metals companies to choose from. But, going for top-tier names is your best play to get on the right side of rising gold prices.
That’s the case here with Barrick Gold. If prices of the underlying commodity continue to climb, expect further upward trajectory for this industry leader. And if prices continue to tread water, or head lower? This high-quality play may hold onto much of its recent gains.
As InvestorPlace contributor Muslim Farooque wrote Oct. 16, with its robust cash flow and strong balance sheet, GOLD stock may be more resilient than smaller, more levered gold exploration plays. With its all-in sustaining cost at between $920 and $970 per ounce, the company isn’t dependent on sky-high gold prices to make it current operations worthwhile.
With many factors in its favor, Barrick Gold is one of the best plays out there for exposure to rising gold prices.
Hot Gold Stocks: Kinross Gold (KGC)
Barrick and Newmont (more below) may be some of the highest quality gold stocks. But, with quality comes a premium valuation. Both names trade at forward P/E ratios above 20. But KGC stock? Consider this the major value name in the space.
Shares change hands at a low forward P/E of 10.78. And, with the company’s recent announcement it may sell its gold mines in the Americas and re-list the stock in London, the company could be on the verge of unlocking much of its underlying value.
How much could Kinross be worth? Last month, BMO Capital’s Jackie Przybylowski upgraded shares to a “buy” rating, giving the stock a $14.25 per share price target (the stock currently trades around $8.50 per share). The rationale behind the upgrade? Namely, the company’s decision to reinstate its dividend.
Coupled with the company’s fiscal discipline, and there’s plenty of reason for investors to start giving KGC stock a less discounted valuation. If you are a value investor looking for gold exposure, this may be one of the best opportunities in this space.
Newmont Corporation (NEM)
Like with Barrick, this is another high-quality gold play. Sure, if the price of gold takes an expected dive, NEM stock would fall to lower prices. But, given the company’s focus on fiscal discipline, there’s less risk of the company getting in over its head with exploration that only makes sense at sky-high gold prices.
In addition, Newmont is dedicated to returning capital to shareholders. It’s 1.7% dividend isn’t exactly “high yield.” But, with the dividend increasing 20.4% per year over the past five years, expect the payouts to continue rising. With a payout ratio of just 40%, there’s plenty of room for further increases.
As InvestorPlace contributor Faisal Humayun discussed Sept. 25, there are many reasons (diversified asset base, large gold reserves, strong balance sheet) why Newmont is one of the best gold stocks out there. And with shares slightly down from their August highs, current prices (around $60 per share) may be a solid entry point.
Hot Gold Stocks: Wheaton Precious Metals (WPM)
Like Franco Nevada, Wheaton is another major streaming company. But, its outperformed that major peer so far in 2020. With shares up 62.7% year-to-date, this has been one of the most profitable trades out there for those who shrewdly went bullish on gold when the pandemic first made headlines.
But, after its epic run, is WPM stock running out of gas? RBC’s Josh Wolfson remain on the fence. In fact, the analyst recently reiterated his “hold” rating on the stock.
A key issue here may be valuation. Similar to the situation with FNV stock, WPM stock trades at a premium forward multiple (32.7x). Yet, if gold prices rally again, expect valuation concerns to continue taking a back seat.
So, what’s the call here? Given it’s going to be gold price action, not valuation, that will drive shares in the near-term, Wheaton remains a solid vehicle for exposure to higher gold prices. Just tread carefully, as its strong 2020 performance may mean there’s more room to fall.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.