- Here are five gold stocks that look attractively valued and are positioned to trend higher in the next 12 to 18 months.
- Newmont Corporation (NEM): Has a strong balance sheet and a low all-in sustaining cost. Dividend growth is likely considering the free cash flow visibility.
- Kinross Gold (KGC): The sale of Russian assets de-risks the portfolio. KGC stock looks undervalued with a strong cash buffer for organic and inorganic growth.
- Barrick Gold (GOLD): Has an investment-grade balance sheet with more than $20 billion in free cash flow visibility between 2022 and 2026.
- Equinox Gold (EQX): Among the smaller gold mining companies with production upside visibility in the next few years, Equinox has ample cash to buffer for capital investments.
- AngloGold Ashanti (AU): Operating cash flows have increased threefold in Q1 2022 on a year-over-year basis.
The markets seem to be in the worst phase since the pandemic-driven crash of March 2020. While I believe that there are several pockets of value among growth stocks, it makes sense to play it safe. One way is through exposure to physical gold or gold stocks.
Talking about gold, an obvious question from investors would be the implication for the precious metal as interest rates increase. With contractionary monetary policies, there can be a case for gold trending lower. However, it’s clear that the precious metal has remained relatively resilient.
There are two important reasons to be bullish on gold even as interest rates trend higher. First, geopolitical tensions remain high. In such a scenario, gold tends to perform well. Further, there are already expectations of a recession in the U.S. in 2023. Cathie Wood also believes that we might be in a global recession.
If there is a meaningful slowdown in growth, the Federal Reserve is likely to go slow on the rate hike. On the contrary, if the situation worsens, there can be a case for cuts in interest rates. If this happens, gold is likely to go ballistic along with gold stocks.
I would, therefore, remain invested in some quality gold stocks. Let’s look at some of the names that are worth considering:
|KGC||Kinross Gold Corporation||$4.04|
|GOLD||Barrick Gold Corporation||$20.52|
|EQX||Equinox Gold Corp.||$5.39|
|AU||AngloGold Ashanti Limited||$16.23|
Gold Stocks to Buy: Newmont Corporation (NEM)
Newmont (NYSE:NEM) is possibly the top name to consider among gold stocks. The stock trades at an attractive forward price-to-earnings (PE) ratio of 17.36 and also offers a dividend yield of 3.2%.
Newmont has robust gold reserves of 96 million ounces along with gold resources of 112 million ounces. The current project pipeline provides visibility for stable production into 2040. Further, the company expects to improve the all-in sustaining cost to $800 to $900 an ounce in the next few years.
Even if gold trades around $2,000 an ounce levels, Newmont is positioned to deliver healthy free cash flows. For first-quarter (Q1) 2022, Newmont reported operating and free cash flow of $689 million and $252 million, respectively. With $1 billion in free cash flow visibility, there is ample scope for shareholder value creation.
It’s also worth noting that the company reported a total liquidity buffer of $7.3 billion. Further, with a net-debt-to-adjusted-EBITDA of 0.3x, the company has robust financial flexibility. It can possibly pursue opportunistic inorganic growth.
NEM stock is a quality name to consider with the company having a strong asset base and a quality balance sheet.
Kinross Gold (KGC)
Kinross Gold (NYSE:KGC) has been among the underperforming gold stocks. One reason is the fact that the company had asset exposure to Russia. For 2022, Kinross expected 13% of production from Russia.
However, in April 2022, Kinross sold its Russian assets for $680 million. The company also announced the sale of the Chirano mine in Ghana for $225 million. With sales of assets from regions with high geopolitical risk, the company seems prepared for growth in 2022 and beyond.
It’s worth noting that as of December 2021, Kinross reported $1.9 billion in total liquidity. The asset sales boost the company’s cash buffer and positions Kinross for organic and inorganic growth. Therefore, the production decline from asset sales is likely to be offset through higher investments in core assets and potential acquisitions.
For 2022, Kinross has guided for an all-in sustaining cost of just above $1,100 an ounce. At the current gold price, the company is positioned to deliver free cash flows.
Overall, KGC stock trades at a forward PE of 11.48. I would not be surprised if the stock doubles in the next 12 months, particularly if the cash buffer can be utilized for aggressive investments and acquisition of assets.
Gold Stocks to Buy: Barrick Gold (GOLD)
Barrick Gold (NYSE:GOLD) stock is another fundamentally strong name among gold stocks. After having touched highs of $26, GOLD stock has corrected to current levels of $20.52. The correction is a good entry opportunity.
For Q1 2022, Barrick reported revenue of $2.8 billion and an adjusted EBITDA of $1.6 billion. Further, the company reported operating cash flow of $1 billion for the quarter. With strong cash flows, the company has doubled its quarterly dividend to 20 cents.
It is also worth noting that Barrick holds $5.2 billion in cash. The company’s investment grade balance sheet provides ample flexibility for organic and acquisition driven growth.
Even if the current core assets are considered, Barrick believes that the company can deliver free cash flow in excess of $20 billion between 2022 and 2026. This is assuming a scenario that gold trades around $2,000 an ounce. This seems entirely likely.
The company’s long-term corporate credit rating was upgraded by the S&P 500 to BBB+. With core assets likely to deliver sustained free cash flow, it is likely that further rating upgrades will be a catalyst for GOLD stock upside.
Equinox Gold (EQX)
Among the relatively smaller companies, Equinox Gold (NYSE:EQX) looks attractive for the long-term. The company is still at an early growth stage with 16 million ounces of gold reserves and 30 million ounces of resources.
One reason to like Equinox is the production upside visibility from existing assets. Currently, the company has six producing mines with another mine under commission. For 2022, production from these assets is guided at 670,000 ounces. In the next few years, Equinox expects to achieve production of 1 million ounces on an annual basis.
For Q1 2022, Equinox reported revenue of $223.2 million and an adjusted EBITDA of $43.4 million. With a ramp-up in production, the all-in sustaining cost is likely to decline. This will translate into EBITDA margin expansion. Equinox also reported cash and equivalents of $151 million. Additionally, the company had a total liquidity buffer of $351 million. Equinox also reported $375 million in market value of investments at the end of the quarter. Therefore, there is an ample liquidity buffer to pursue aggressive growth.
Overall, EQX stock looks attractive below $6 levels. If gold can sustain around $2,000 an ounce over the next 12 months, the stock can potentially double.
Gold Stocks to Buy: AngloGold Ashanti (AU)
AngloGold Ashanti (NYSE:AU) stock is another undervalued name among gold stocks. Currently, AU stock trades at a forward PE of 10.7 and also provides a dividend yield of 3.8%.
For Q1 2022, AngloGold reported healthy numbers with threefold growth in operating cash flow on a year-over-year basis. With $533 million in operating cash flow, the company has annualized visibility of $2 billion. Additionally, the company had $2.5 billion in liquidity.
It is also likely that cash flows will increase in the next few quarters. For Q1 2022, the all-in sustaining cost was higher with elevated sustaining capital investments. Once this declines on a relative basis, cash flows should swell further. Therefore, there is ample financial flexibility for investment in growth projects. Additionally, dividends are likely to sustain and potentially increase if the gold price remains firm.
It is worth noting that as of December 2021, AngloGold reported mineral resources of 123.2 million ounces. The mineral reserve provides multi-year production visibility and cash flow upside potential.
On the date of publication, Faisal Humayun did not hold (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.