In 2021, gold was an underperformer with a 4% loss, while the S&P 500 was up 27%. We are now two months into 2022, but we are seeing a reversal in these trends. The S&P 500 is down by 11%, while gold is up more than 8%.
Gold has been rising despite the Federal Reserve’s hawkish pivot, with the market now expecting between five and seven rate hikes this year. Some of this is due to inflation data continuing to come in above expectations and failing to turn lower as many had anticipated — i.e. the “transitory” argument.
However, the major catalyst for this move higher is increasing geopolitical tension resulting from Russia’s invasion of Ukraine. Such circumstances tend to increase demand for gold, especially in a rising rate environment when bonds are less attractive.
Investors should consider buying the following high-quality gold miners to take advantage of rising economic uncertainty and geopolitical risk:
Gold Stocks: DRDGold (DRD)
DRD — based in Johannesburg, South Africa — operates as a gold mining company that “engages in the surface gold tailings retreatment business in South Africa. The company is involved in the exploration, extraction, processing, and smelting activities.”
That means DRD extracts gold from the byproducts of traditional mining. This is more environmentally friendly and has lower costs than traditional mining.
Notably, DRD doesn’t hedge, which means shares tend to be more volatile but also often outperform during gold bull markets. The company has also paid out dividends for the last 15 years. About 50.1% of DRD is owned by Sibanye Stillwater (NYSE:SBSW), one of the largest mining companies in the world.
The company has been doing well due to the strength in gold prices. In 2021 due to the coronavirus impacting production early in the year, the company saw a 3% drop in production. This should increase in the coming years especially as mining activity increases with higher gold prices.
The company also has low levels of debt and a decent cash cushion.
DRD’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a “buy” in our proprietary rating system. DRD has a Value grade of B due to its P/E of 13.4 It is ranked No. 5 in the Miners – Gold industry. Click here to see the complete POWR Ratings for DRD including Growth, Momentum, Stability, Sentiment, and Quality grades.
Gold Fields Limited (GFI)
GFI “is a producer of gold and a holder of gold reserves. The Company is involved in underground and surface gold and copper mining and related activities, including exploration, development, extraction, processing and smelting.” It holds interests in nine operating mines located in Australia, Peru, South Africa, and West Africa. GFI has 56.1 million ounces of gold equivalent reserves.
Most of GFI’s gold comes from Australia and West Africa. Over the past couple of years, GFI’s production was impacted by the pandemic, labor strikes and regulatory issues. Most of these are in the rearview mirror, as production was quite strong in the latter half of 2021.
This is evident with the company reporting net income that was 9% higher on an annual basis despite lower prices and slightly higher costs. The company has tremendous upside, as it owns the third-largest known deposit of gold. It’s forecasting production of 2.7 million ounces in 2024.
These favorable developments and positive momentum make GFI one of the top ways for investors to bet on rising gold prices. The POWR Ratings also agree as the stock is rated a B which translates to a “buy” rating. Further, it has a B for Value which isn’t surprising given its P/E of 16.5 and healthy cash reserves in addition to being cash flow positive.
If you are interested in GFI’s component grades for Growth, Momentum, Industry, Stability, Quality, and Sentiment, please click here.
Gold Stocks: B2Gold Corp. (BTG)
BTG has operations in Mali, the Philippines and Namibia with reserves and development projects in a variety of additional locations. It’s known as one of the producers with the lowest costs due to easily accessible reserves in these locations with relatively friendly jurisdictions.
In 2021, BTG produced 950,000 ounces of gold in total. And “next year, analysts are expecting production between 900,000 and 1,050,000 ounces at an all-in cost of production between $1,010 and $1,050 per ounce.”
The company is back to running at full capacity following some disruptions in 2020 and the first half of 2021 due to the pandemic.
One very positive development for BTG is its improvement in operations which is seen with its free cash flow per share more than 100% above its free cash flow per share when gold was at $1,800 in the 2011-2012 range.
Another positive is that the company pays a dividend yield of 3.8% which is above the S&P 500’s 1.4% yield and the 10-year Treasurys 2% yield. It’s also quite cheap, with a forward P/E of 12.2.
Given these positives, it’s not surprising that BTG has an overall B rating, which equates to a “buy” in the POWR Ratings system. The company also has an A for Quality which is consistent with its improving operations, low cost of production, and above-average dividend yield. Click here for BTG’s complete POWR Ratings including component grades for Momentum and Growth.
On the date of publication, Jaimini Desai did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Jaimini Desai has been a financial writer and reporter for nearly a decade. He has helped countless investors take profitable rides on some of the hottest growth trends. His previous experience includes writing for Investopedia, Seeking Alpha, and MT Newswires. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters.
