Inflation has been accelerating in the United States to levels that would significantly concern policymakers. The most recent data indicated that inflation has surged to a 40-year high of 7.9%. This was one of the reasons that contributed to a rally in precious metal stocks.
It’s also worth noting that the last reading of inflation does not incorporate the recent surge in oil and gas price. Therefore, inflation numbers will look worse in the coming months.
With geo-political tensions escalating coupled with high inflation, precious metal stocks are in the limelight. Additionally, with the Russia-Ukraine conflict leading to uncertainties on global economic growth, policymakers might not go aggressive on rate hikes.
In this uncertain scenario, investors can benefit from exposure to physical gold or gold mining stocks. Even after the recent rally in gold miners, the stocks look attractive. With the surge in gold, cash flow visibility has swelled and gold miners will increase dividend pay-out in 2022. Therefore, there are multiple positive catalysts for precious metal stocks.
Let’s look at four precious metal stocks that are worth buying as inflation accelerates.
Precious Metal Stocks to Buy as Inflation Accelerates: Newmont (NEM)
In the last six-months, Newmont stock has trended higher by 29% as gold surges. The recent correction from highs seems like a good accumulation opportunity for long-term investors.
One reason to like NEW stock is the company’s robust reserve base. Currently, Newmont has 96 million oz. of reserves and 112 million oz. of resources. Additionally, the company also has 45 billion copper pounds of reserves and resources. A strong reserve base ensures steady production and cash flow visibility.
Another reason to like Newmont is the company’s healthy balance sheet. As of December 2021, Newmont reported $5.0 billion in cash and equivalents. Further, for 2021, the company’s free cash flow was $2.6 billion. With the recent surge in gold price, FCF is likely to accelerate significantly in 2022.
A strong balance sheet and cash flows also position Newmont to pay higher dividends along with accelerated share repurchase. Over the long-term, Newmont also expects to lower the all-in-sustaining cost in the range of $800 to $900 an ounce. This will further boost the EBITDA margin.
Overall, NEM stock looks attractive at a forward price-to-earnings-ratio of 25.4. With positive industry tailwinds and a dividend yield of 2.86%, the stock is worth holding in the portfolio.
Barrick Gold (GOLD)
Barrick Gold is another quality name among precious metal stocks. As compared to Newmont, the company’s stock trades at a relatively attractive forward P/E of 22.6. GOLD stock also offers a dividend yield of 1.64%.
Barrick Gold is also attractive from the perspective of cash flows. For 2021, the company reported free cash flow of $1.9 billion. The company also closed 2021 with cash and equivalents of $5.3 billion. This gives Barrick robust financial flexibility for expansion projects.
According to Barrick, for every $100 per ounce upside in gold price, the company’s free cash flow is likely to increase by $1.5 billion. Therefore, I would not be surprised if the company delivers FCF in excess of $3.0 billion in 2022.
Also, for 2021, Barrick had a relatively attractive all-in-sustaining-cost of $1,026 an ounce. If gold upside sustains in the coming quarters, EBITDA margin expansion will be meaningful.
Another point to note is that Barrick has a healthy reserve replacement ratio. For 2021, the company “more than replaced its gold reserves net of depletion at a better grade.” Considering the financial flexibility, exploration projects will ensure that the reserve life remains robust.
In Q4 2021, Barrick announced a $1.0 billion share buyback. With the upside in gold price, dividend growth is likely in 2022. GOLD stock therefore looks attractive for accumulation on dips.
Precious Metal Stocks to Buy as Inflation Accelerates: Hecla Mining (HL)
Hecla is a diversified miner with exposure to gold and silver assets. HL stock has trended higher by 20% in the last month as precious metals rally. With strong visibility for production upside in 2022, the stock is poised for further increases.
As for its assets, Hecla reported 200 million ounces of silver reserves as of 2021. For the same period, the company’s gold reserves were 2,730,000 ounces.
For 2021, Hecla reported revenue growth of 20% on a year-on-year basis to $807 million. For the same period, the company reported operating and free cash flow of $221 million and $111 million, respectively. With a total liquidity buffer of $443 million, the company is well positioned for aggressive growth.
It’s worth noting that for the company’s Lucky Friday asset — a deep underground silver, lead, and zinc mine located in the Coeur d’Alene Mining District in northern Idaho — silver production in 2021 was 3.6 million ounces. For the current year, production from the asset is guided at 4.6 million ounces. With declining cash cost and an increase in silver price, Hecla is positioned for free cash flow upside in 2022.
Even beyond 2022, Hecla has guided for sustained growth in gold and silver production. With multi-year growth visibility, HL stock looks attractive.
Kinross Gold (KGC)
KGC stock has been under-performer among precious metal stocks. The recent surge in gold price has failed to trigger a rally for KGC stock. A key reason is Kinross Gold suspending Russia operations. For 2022, the company had expected 13% of production from Russia.
However, at a forward P/E of 12.1x, the stock looks attractive. The setback has been discounted in the price. As cash flows swell from production in other assets, KGC stock is likely to trend higher from current levels.
From a growth perspective, an important point to note is that Kinross reported a total liquidity buffer of $1.9 billion as of December 2021. Recently, the company announced a strategic investment in Allegiant Gold. It’s very likely that Kinross will pursue the inorganic route to make-up for the production loss from Russia.
For 2021, Kinross reported an all-in-sustaining-cost of $1,138 an ounce. With gold trading near $2,000 an ounce, the company is positioned for healthy free cash flows in 2022. This will add to the financial flexibility to pursue aggressive exploration.
Overall, KGC stock looks like a contrarian bet among precious metal stocks. Some exposure can be considered at current levels.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.