Bank of America (NYSE:BAC) estimates that there will be 152 rate cuts by central banks around the world this year. This is reason enough to be bullish on a potential bull market for precious metals. This column discusses three undervalued precious metal stocks that are poised to deliver healthy total returns within the next 12 months.
Besides potential expansionary monetary policies, geopolitical tensions are a reason to be bullish on precious metals. It’s worth noting that central banks globally continue to buy gold as a part of the reserve diversification.
As a part of precious metal holding, I personally prefer to hold some physical gold and silver. At the same time, exposure to quality precious metal miners makes sense. As realized prices trend higher, these miners are positioned to increase dividends on the back of higher free cash flows.
Let’s discuss three precious metal stocks that trade at a valuation gap and are poised for a rally.
Newmont Corporation (NEM)
Newmont Corporation (NYSE:NEM) is possibly the best name among precious metal stocks to buy. In the last 12 months, NEM stock has trended lower by 28% and I see this as a golden buying opportunity. The blue-chip stock has an attractive dividend yield of 4.25% and with a quality asset base, there is clear cash flow visibility.
It’s worth noting that Newmont has an investment-grade balance sheet that provides flexibility for organic and acquisition-driven growth. In November, Newmont completed the acquisition of Newcrest Mining (OTCMKTS:NCMGF) to “create the world’s leading gold company with robust copper production.”
Another point to note is that Newmont generated $1 billion in operating cash flow in Q3 2023. With a higher realized gold price and the acquisition, the annual OCF potential is likely to be more than $5 billion. This will translate into aggressive investments coupled with healthy dividend growth.
Kinross Gold (KGC)
Kinross Gold (NYSE:KGC) stock has trended higher by 27% in the last 12 months. However, the gold miner looks undervalued at a forward price-earnings ratio of 14. Further, KGC stock offers a dividend yield of 2% and I expect healthy dividend growth this year.
One reason for depressed valuations is that Kinross expects stable gold production through 2025. It’s the factor of higher realized gold price that’s likely to translate into revenue and cash flow growth. However, it’s worth noting that Kinross had to sell Russian assets in 2022 due to geopolitical factors and that impacted production growth visibility.
Kinross reported a liquidity buffer of $2 billion as of Q3 2023. Based on Q3 operating cash flows, the annual OCF visibility is more than $1.6 billion. Therefore, the Company has high financial flexibility to pursue acquisition-driven growth. Once production visibility changes, KGC stock is likely to skyrocket.
Hecla Mining (HL)
Hecla Mining (NYSE:HL) is among the precious metal penny stocks to buy at undervalued levels. Hecla is the largest silver miner in the U.S. and the Company also has exposure to gold assets.
For 2023, Hecla reported silver production of 14.3 million ounces, which was almost flat on a year-on-year basis. This is one reason for HL stock being depressed. However, it’s important to note that the flat production was on account of Lucky Friday mine operations being suspended.
The good news is that Lucky Friday has resumed production with ramp-up expected in Q1 2024. Further, Keno Hill produced 1.5 million ounces in 2023 and is likely to be a major growth contributor this year.
By 2025, Hecla is targeting annual production of 20 million ounces of silver. Therefore, production upside visibility is robust and if realized prices are attractive, revenue growth is likely to be stellar. Given these positives, I expect a strong comeback for HL stock this year.
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.
