Gold is an excellent portfolio hedge due to its low correlation with equities. It also offers protection against inflation, stability during uncertain times, and a psychological wealth effect. The inverse relationship to the US Dollar adds to its appeal as a diversification asset. With inflation and inflation expectations uncomfortably high, the potential for an interest rate cut by the US Federal Reserve, and geopolitical risks rising, investors should consider gold and gold stocks, with this precious metal trading at all-time highs.
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What are Gold Stocks?
Gold stocks are publicly listed companies active in the gold sector. They are primarily involved in the exploration, extraction, and refining of gold. The recent adoption of AI has opened the path for service companies that use AI to discover deposits. Gold storage companies offer an alternative to direct gold exposure. Still, investors should focus on exploration, extraction, and refining of gold via established and junior gold miners.
Why Should You Consider Investing in Gold Stocks?
Gold has always fascinated as a wealth and status symbol, but gold stocks offer numerous benefits, and investors should consider adding them to their portfolios. Gold outperforms during economic uncertainty and geopolitical events, providing downside protection for equity portfolios. Gold stocks also offer an inflation hedge and outperform during periods of US Dollar weakness.
Here are a few things to consider when evaluating gold stocks:
Invest in a combination of established gold miners for stability and dividends, and junior miners, which carry greater risks but offer notable upside potential
Analyze gold reserves of gold miners to gauge the longevity of their operations
Focus 75% of your portfolio on gold stocks with mining operations in the top ten countries for gold production, with the remaining 25% on exciting global projects
What are the Downsides of Gold Stocks?
Volatile gold prices pose the most notable risk, as they directly impact the profitability of gold stocks. While the last three years have witnessed high gold prices and all-time highs, which encouraged exploration and higher dividend yields, other periods have seen depressed prices. Long-term, gold is likely to march higher as the current global economic and political landscape faces graver risks than at any point in the past 70 years.
Here is a shortlist of attractive gold stocks:
Kinross Gold (KGC)
Triple Flag Precious Metals (TFPM)
Franco-Nevada Corporation (FNV)
SSR Mining (SSRM)
Agnico Eagle Mines (AEM)
An Update on My Previous Best Gold Stocks to Buy Now
In our previous installment, I highlighted the upside potential of Pan American Silver and Coeur Mining.
Pan American Silver (NYSE:PAAS) - A long position in PAAS between $53.85 and $56.26
PAAS rallied by over 27%, and my stop loss triggered at $61.00, resulting in a profit just shy of 20%.
Coeur Mining (NYSE:CDE) - A long position in CDE between $18.20 and $19.18
CDE rallied by over 16%, and my stop loss triggered, closing this position at $20.00 for a profit exceeding 14%.
Kinross Gold (NYSE:KGC) Fundamental Analysis
Kinross Gold (NYSE:KGC) is primarily a gold mining company with silver as a secondary metal. It operates mines in the US, Canada, Russia, Brazil, Chile, Ghana, and Mauritania. It is also a constituent of the S&P/TSX 60.
So, why am I bullish on Kinross Gold following its correction?
The Great Bear project in Ontario, a high-grade, tier-one deposit with potential for over 10 million ounces, and the Lobo-Marte project in Chile, projected to produce over 300,000 ounces annually, are significant growth catalysts. KGC also benefits from balance sheet discipline, including the retirement of $500 million 4.50% Senior Notes due 2027 and a $1 billion net cash buffer, while hedge fund and institutional gold buying add momentum.
Metric | Value | Verdict |
P/E Ratio | 12.45 | Bullish |
P/B Ratio | 3.71 | Bearish |
PEG Ratio | Unavailable | Bearish |
Current Ratio | 2.84 | Bullish |
Return on Assets | 20.35% | Bullish |
Return on Equity | 35.47% | Bullish |
Profit Margin | 35.99% | Bullish |
ROIC-WACC Ratio | Positive | Bullish |
Dividend Yield | 0.51% | Bearish |
Kinross Gold Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 12.45 makes Kinross Gold an inexpensive stock. By comparison, the P/E ratio for the S&P 500 Index is 32.19.
The average analyst price target for Kinross Gold is $41.23. This suggests excellent upside potential with fading downside risks.
Kinross Gold Technical Analysis
Kinross Gold Price Chart
The Kinross Gold D1 chart shows price action breaking out above the descending Fibonacci Retracement Fan.
It also shows Kinross Gold breaking out above a significant horizontal support zone.
The Bull Bear Power Indicator is bearish with an ascending trendline, slowly nearing a bullish crossover.
My Kinross Gold Long Stock Trade
KGC Entry Level: Between $28.58 and $29.37
KGC Take Profit: Between $42.06 and $43.32
KGC Stop Loss: Between $21.94 and $23.03
Risk/Reward Ratio: 2.03
Triple Flag Precious Metals (NYSE:TFPM) Fundamental Analysis
Triple Flag Precious Metals (NYSE:TFPM) is a gold, silver, copper, nickel, lead, lithium, and zinc streaming and royalty company with mineral interests in Australia, Canada, Colombia, Cote d'Ivoire, Mexico, Mongolia, Peru, South Africa, and the US. It currently has 34 producing assets, 207 in development, with 16 streams and 225 royalties.
So, why am I bullish on Triple Flag Precious Metals at current levels?
Triple Flag Precious Metals delivered a record financial performance in its latest quarter, with revenue surging 79% year-over-year to $147.0 million, while adjusted net earnings sky rocketed 128% to $92.7 million. It achieved a net asset margin of 93%, and I turned bullish amid the expansion of its high-quality asset base, capital allocation strategy, dividend increase, and its latest operating cash flow of $113.3 million.
Metric | Value | Verdict |
P/E Ratio | 20.85 | Bullish |
P/B Ratio | 2.95 | Bearish |
PEG Ratio | Unavailable | Bearish |
Current Ratio | 6.31 | Bullish |
Return on Assets | 8.41% | Bullish |
Return on Equity | 15.93% | Bullish |
Profit Margin | 68.68% | Bullish |
ROIC-WACC Ratio | Positive | Bullish |
Dividend Yield | 0.75% | Bearish |
Triple Flag Precious Metals Fundamental Analysis Snapshot
The price-to-earnings (P/E) ratio of 20.85 makes Triple Flag Precious Metals an inexpensive stock. By comparison, the P/E ratio for the S&P 500 Index is 32.19.
The average analyst price target for Triple Flag Precious Metals is $42.75. This suggests excellent upside potential with reasonable downside risks.
Triple Flag Precious Metals Technical Analysis
Triple Flag Precious Metals Price Chart
The Triple Flag Precious Metals D1 chart shows price action between its descending 0.0% and 38.2% Fibonacci Retracement Fan levels.
It also shows Triple Flag Precious Metals inside a horizontal support zone.
The Bull Bear Power Indicator is bearish with an ascending trendline, approaching a bullish crossover.
My Triple Flag Precious Metals Long Stock Trade
TFPM Entry Level: Between $30.72 and $31.96
TFPM Take Profit: Between $42.75 and $44.03
TFPM Stop Loss: Between $24.75 and $26.89
Risk/Reward Ratio: 2.16
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