Given the incredible advancements of modern technologies, it’s no surprise that many analysts and investors regard precious metals as barbaric relics that serve little relevance. On some levels, I can appreciate their point. Buying gold stocks might seem like going for a bunt in a baseball game. Let’s face it — people are paying money to watch massive dingers, not dinky little dribblers in the infield.
At the same time, gold stocks can perform very well when their time has come. But the lingering argument is always, is that time now? Obviously, if we had access to crystal balls, we wouldn’t have such debates in the first place. That said, based on the recent bullishness of the underlying spot market, it’s worth investors performing some extra research about precious-metals-related opportunities.
First, the AP recently reported on U.S. consumer confidence dropping in August, mainly due to the lingering novel coronavirus, along with concerns about rising inflation. “The Conference Board reported Tuesday that its consumer confidence index dropped to a reading of 113.8 in August, down from a revised 125.1 in July. It was the lowest level for the index since a reading of 95.2 in February.” Obviously, this fear-trade dynamic bodes well for gold stocks.
Second, employment trends aren’t as robust as many would like to see. While the employment level has been consistently improving, the rate has slowed down over the last several months. Between October 2020 and August 2021, job figures increased by 2.3%. But in the same period two years ago, the improvement was 1%. In other words, we should see significant benefits due to the law of small numbers but we’re not, cynically bolstering gold stocks.
Third, we don’t really know what to make of the present situation. Strangely, the national GDP is no worse for wear following the Covid-19 pandemic, yet August’s employment level is still 3.5% below pre-pandemic levels. That suggests a deflationary trend — higher productivity over a smaller work base.
While deflation isn’t great for precious metal valuations, perhaps the brewing fear trade is enough to lift these gold stocks.
- Newmont (NYSE:NEM)
- Barrick Gold (NYSE:GOLD)
- AngloGold Ashanti (NYSE:AU)
- Sibanye Stillwater (NYSE:SBSW)
- Kinross Gold (NYSE:KGC)
- Wheaton Precious Metals (NYSE:WPM)
- Royal Gold (NASDAQ:RGLD)
Listening to reputable metals experts like David Morgan, very few in the sector will advocate irresponsible overexposure to gold stocks. This is a sector where you should cover your core needs first, then consider wagering with speculation funds.
Gold Stocks: Newmont (NEM)
Though gold stocks represent a viable place to park your money during periods of fear or uncertainty, the wider investment community sometimes treats the sector as a one-dimensional arena. Because of this, if you’re serious about precious metals, then you ought to consider a healthy does of the major mining players. For that, there’s no better name than Newmont.
As of this writing, Newmont is the biggest among gold stocks by market capitalization, featuring a valuation of just under $46 billion. As well, according to NS Energy, Colorado-based Newmont is the world’s biggest gold miner by production, generating “just over 5.8 million ounces of the metal in 2020.”
Notably, the company has “operations across Africa, Australia, North America and South America, and boasts mine reserves totalling 94.2 million attributable ounces of gold. It also mines copper, silver, zinc and lead.”
Despite the troubles, 2020 was a banner year for Newmont, which posted revenue of $11.5 billion, up 18% from the prior year. Better yet, momentum has carried into this year, with its second-quarter sales of $3.07 billion up nearly 30% year-over-year.
Barrick Gold (GOLD)
Coming in second place to Newmont is Barrick Gold, one of the vanguards of gold stocks. At time of writing, the company features a market cap of $35.5 billion. Last year, Barrick produced “just under 4.8 million ounces of gold,” which by itself is a sizable haul — though this metric slipped 13% compared to the prior year.
Against other major gold stocks, Barrick has been conspicuously more volatile. For instance, GOLD stock was down almost 18% on a year-to-date basis leading up to the Labor Day weekend. Over the same period, NEM was only off by 5.5%. As well, since early June of 2019, GOLD appears to be forming a long-term bearish head-and-shoulders pattern, which isn’t exactly encouraging.
Part of the laggardness could be due to less-than-impressive financial numbers relative to peers. While Barrick posted a roughly 30% YOY revenue lift in 2020, in Q2 2021, the company’s sales was $2.9 billion, down over 5% from the year-ago quarter.
Nevertheless, investors with a long horizon for gold stocks should keep an eye on Barrick. If the ongoing pandemic and its downstream impacts are acutely negative, it might be time to pick up some shares.
Gold Stocks: AngloGold Ashanti (AU)
Under normal circumstances, AngloGold Ashanti — which features the awesome ticker symbol AU — makes noise because it’s consistently one of the top gold stocks to buy. As NS Energy points out, “South Africa-based AngloGold Ashanti ranks third among the world’s top gold mining companies, and is the biggest producer in Africa.”
Last year, AngloGold produced a tick over three million ounces of gold. Compared to other gold stocks, that’s a very healthy number. Yet over the trailing-year period, AU stock is down 43%.
Primarily, the company isn’t living up to its prior standards. Compared to 2019’s tally, 2020’s production haul was 7% in the red. Moreover, AngloGold continues to suffer from incidents that have nothing directly to do with demand for the yellow metal.
For example, in August, Reuters reported that AU shares slumped badly after the issuing company “trimmed its 2021 production estimate and posted a 10% drop in headline first-half earnings due to the impact of the COVID-19 pandemic and increased bullion mining costs.”
Though badly beaten up, it’s possible that AU could make a comeback, especially as the coronavirus represents a thorn on the side of multiple countries.
Sibanye Stillwater (SBSW)
Though it’s one of the more speculative names among gold stocks, Sibanye Stillwater offers serious firepower for investors that can handle the occasional heat.
In many ways, Sibanye is a conundrum. On one hand, it’s one of the most powerful mining firms, not only mining gold but also claiming the title of the largest primary producer of platinum and second-largest palladium producer.
But on the other hand, labor issues and mine closures — a not-infrequent issue in Sibanye’s home market of South Africa — can wreak havoc on SBSW stock. That brings up a key frustration about gold stocks in general. Sometimes, you can have the right thesis regarding the underlying commodity only to be completely blindsided by an administrative issue.
Still, what I do like about Sibanye Stillwater is its broad exposure to critical metals. Yes, the topic at hand is gold. However, palladium could be a critically important metal, not only for its use in electronics but also because it’s a component found in hybrid vehicles.
Sure, electric vehicles will eventually take over but as Bloomberg points out, that transition will take time. In the interim, you have a significant producer of the metal in Sibanye.
Gold Stocks: Kinross Gold (KGC)
One of the more psychologically attractive gold stocks thank to its present single-digit price tag, Kinross Gold also offers serious fundamental reasons to be bullish on its shares. Headquartered in Toronto, Canada, Kinross features an expansive portfolio, with mines in the U.S., Brazil, Chile, Ghana, Mauritania and Russia.
In 2020, data from NS Energy revealed that the company “produced just under 2.4 million ounces of gold.” While a healthy figure by itself, this output slipped 6% against the prior year’s haul. Nevertheless, for those who are forward-looking optimists and are willing to wager on geopolitical dynamics, KGC could be quite interesting in the years ahead.
While the world has looked on with dismay regarding the chaotic pullout of U.S. personnel from Afghanistan, a thorny issue stands: what will happen to the country’s vast natural resources? As a Reuters report stated, “Returning to power in Afghanistan after a 20-year absence, the Taliban have regained control of natural resources that a former mines minister of the country once said could be worth up to $3 trillion.”
It’s not a guaranteed play, but I don’t think investors can ignore the prospects of a supply shortage combined with increased demand. Certainly, this is one to keep an eye on.
Wheaton Precious Metals (WPM)
No matter how careful you are, gold stocks will always carry volatility risks due to their unpredictable nature. For now, the lack of consumer confidence and rising inflation concerns weigh heavily on business-centric investments but cynically support sectors tied to precious metals.
But what if those headwinds fade? Then, it’s not unreasonable to assume that many miners — particularly the speculative variety — will crumble.
To help ease the choppiness, investors should consider streaming specialist Wheaton Precious Metals. Streaming refers to a business model where a company agrees to purchase all or a portion of a miner’s metals produced at an agreed-upon price.
To be fair, streaming companies also tend to mitigate their upside due to the prior price agreement.
However — and this is key — investments like WPM tend to be more stable than other gold stocks since the model factors in price predictability. Sure enough, Wheaton put up some strong fiscal performances, with revenue of $1.1 billion in 2020 up 27% from the prior year. Additionally, WPM posted sales of $330 million in Q2 2021, up 33% YOY.
Gold Stocks: Royal Gold (RGLD)
If you want to invest in gold stocks that have a similar pricing agreement structure to Wheaton Precious Metals, you should check out Royal Gold. As both a streaming and royalty firm, Royal Gold provides a level of predictability that you often don’t get in this market segment.
We’ve already discussed what streaming is. Royalties follow a similar path, except that in their case, the company receives a fixed percentage of the miner’s revenue generation as opposed to the actual commodities. As with Wheaton, Royal Gold’s business model will mitigate upside since the price is already anchored in an agreed-upon contract.
By the same token, Royal has superior downside protection relative to pure mining-centric gold stocks. Therefore, it’s not entirely surprising that the company has also posted strong fiscal performances. In 2020, RGLD generated $615.9 million in revenue, up over 23% against 2019’s result. As well, momentum is very strong this year, with Royal’s Q2 sales of $168 million up 40% from the year-ago quarter.
If you want an eclectic mixture of gold stocks in your portfolio, RLGD is definitely worth consideration.
On the date of publication, Josh Enomoto held a LONG position in gold bullion. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.