The tightening of monetary policy has translated into negative price action for various asset classes. However, the tightening cycle seems to be over with the possibility of one more rate hike before the end of the year. Policymakers are likely to go slow on rate cuts in 2024. Having said that, a lot depends on the macroeconomic outlook. Some economists are talking about the possibility of a 100-basis point rate cut in 2024. Given the monetary policy action, gold stocks have been depressed for a year to date.
However, things are likely to be different next year when the Fed pursues an expansionary policy. It’s therefore a good time to accumulate gold stocks. An important point to note is that even with monetary policy tightening, gold continues to trade near $1,900 an ounce. Potential rate cuts might signal the next big rally for precious metals. If gold trends higher, it will translate into robust growth in cash flows for gold mining companies.
Let’s discuss three gold stocks to buy that are positioned for a big rally in 2024.
Newmont Corporation (NEM)
Newmont Corporation (NYSE:NEM) is the best name among gold stocks to buy for a breakout rally in 2024. NEM stock has remained sideways in the last 12 months and trades at an attractive forward price-earnings ratio of 19. The blue-chip stock also offers a dividend yield of 4%.
The first reason to like Newmont is an investment grade balance sheet that provides flexibility for organic and acquisition-driven growth.
As of Q2 2023, Newmont reported a low leverage of 0.7 coupled with a robust liquidity buffer of $6.2 billion. In May, the company entered into an agreement to acquire Newcrest Mining (OTCMKTS:NCMGF). The acquisition would further boost the Company’s probable gold reserves which stand at 96 million ounces.
An important point to note is that with the current assets, Newmont has stable production visibility into the 2040s. If gold trends are higher, robust free cash flows will translate into shareholder value creation through dividends and share repurchases.
Barrick Gold (GOLD)
Barrick Gold (NYSE:GOLD) is another company that’s attractive and GOLD stock has significant upside potential. Besides trading at attractive valuations, GOLD stock offers a dividend yield of 2.6%.
A key reason to like Barrick Gold is the production growth visibility. The Company has guided for a 30% upside in production growth by the end of the decade. If this is coupled with an increase in gold price, there is ample headroom for value creation.
Coming to the financials, Barrick reported an operating cash flow of $1.6 billion for the first half of 2023. This implies an annualized OCF of $3.2 billion. Assuming a scenario where gold trades at $2,200 or $2,300 an ounce, Barrick will be well positioned to report OCF in excess of $4 billion. High financial flexibility will ensure that exploration activity remains robust and so does reserve replacement. Further, dividend growth is likely to be healthy.
Kinross Gold (KGC)
Among the smaller names in the gold mining industry, Kinross Gold (NYSE:KGC) is a top pick. The penny stock trades at an attractive forward price-earnings ratio of 11.8 and offers a dividend yield of 2.45%. If gold trends higher next year, I would not be surprised with KGC stock doubling.
It’s worth noting that Kinross Gold has investment-grade fundamentals. As of Q2 2023, the Company reported a liquidity buffer of $1.9 billion. Further, operating cash flow for the quarter was $459 million. This implies an annualized OCF potential of $1.8 billion.
On the flip side, Kinross expects stable gold production through 2025. Revenue and cash flow growth depends on gold trending higher. Having said that, I believe that Kinross will potentially acquire assets considering the financial flexibility. Even if asset acquisition does not happen, cash flows will swell and this will translate into higher dividends. At current valuations, I would hold KGC stock for a big breakout rally.
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.
