[ad_1]
TipRanks
JP Morgan says these 3 gold stocks could rise 40% (or more)
Let’s talk about gold. The precious metal is the traditional safe-haven investment, supported by its use – for 5,000 years – as a reliable store of value. Investors looking to protect their portfolios and secure their wealth have traditionally bought heavily in gold, and the price of gold has sometimes been used as an indicator (albeit the reverse) of general economic health. In a recent report, investment firm JP Morgan took a long look at the state of the gold industry – in particular, the gold mining industry. Analyst Tyler Langton points to an underlying paradox in two fundamental facts about gold mining. “Over time, in a commodity company, the lowest cost producers with the longest-lived assets tend to be the relative winners… Gold mines, compared to base metals, generally have a much shorter mine life (sic), and gold miners need to focus on replacing reserves to maintain production levels, ”Langton noted. At first glance, Langton’s paradox may appear to be moving away from heavy investments in gold mining. After all, they are high-risk commodity producers. But the current times are actually pretty good for gold miners. The prices are high compared to the last years; the metal now costs just under $ 1,800 an ounce, but peaked above $ 2,000 in August of last year, at the height of the corona shutdowns, and it was as low as $ 1,200 ago is barely 18 months old. The current high prices bode well for producers. Langton says there is support for current prices, with gold and gold mining seen as a hedge against “macro uncertainty”. He believes that the main sources of support will lie in “real interest rates which stay lower for longer and the stimulus measures linked to COVID-19 which continue to widen the balance sheets of central banks”. With this in the background, Langton and his colleagues began to select the gold mining stocks they see as winning in today’s environment. Not surprisingly, they like companies that are disciplined in M&A activity, that focus on free cash flow and strong returns for shareholders. Using the TipRanks database, we’ve retrieved details of several of their recent picks. Are they as good as gold? Analysts seem to think so; all are rated Buy and potentially offer a significant benefit. Let’s go. Kinross Gold Corporation (KGC) First, Kinross Gold is a mid-cap company – valued at $ 8.6 billion – with active mining operations in the United States, Brazil, West Africa and Russia. Together, these operations have proven and probable gold reserves of 29.9 million ounces. The company is heading towards 2.4 million ounces of total production for 2021, rising to 2.9 million ounces by 2023. The company’s profitability translates into cost of sales per ounce, at 790 $, and the all-in sustaining cost, at $ 1,025 per ounce. . With gold currently selling for $ 1,782 on the commodities exchanges, Kinross’s short-term success is clear. Two sets of statistics highlight the profitability of Kinross. First, the recent record quarterly earnings of the company shows a steady increase in revenues and profits. Aside from a decline in 1Q20, at the onset of the corona crisis, Kinross revenue has grown steadily since the start of 2019 – and even in 2020, every quarter has seen a year-over-year increase. After 7 years without a dividend payment, Kinross used its strong performance in recent months to restore the company’s dividend. Payments are still made irregularly, but since the announcement in September 2020 of the reinstatement of the dividend, two payments have been made and a third has been announced for March of this year. Each payout was 3 cents per share, which translates into a modest return of 1.6%. The key point here is not the strength of the return, but rather the confidence that management has shown in the short to medium term by boosting dividend payments. Based on current production projections, payments are expected to continue through 2023. Tyler Langton, in his notes on Kinross, comes to a bullish conclusion: “Given his expected growth plans and his pipeline of additional projects , we believe Kinross will be able to maintain an average annual production of 2.5mm oz. over the next decade. The company has an attractive cost profile and we expect costs to decrease over the next few years. The company is also expected to generate high and attractive levels of FCFs at current gold prices, and we expect Kinross to direct that cash towards organic growth projects and its dividend. Based on these comments, he selects Kinross as “JPM’s top pick in the gold sector” and rates the stock as overweight (ie a buy). Its price target of $ 11 suggests a potential upside of 61% in the coming year. (To look at Langton’s track record, click here) Kinross gets a Strong Buy recommendation from analyst consensus, based on a 6 to 2 split between buy and hold criticism. Wall Street analysts set an average price target of $ 11.25, slightly more bullish than Langton’s, and implying a one-year rise of 64% from the current price of $ 6.85. (See review of KGC’s shares on TipRanks) SSR Mining, Inc. (SSRM) Heading north to Canada, we now take a look at Vancouver-based SSR Mining. It is another mid-cap mining company, producing gold and silver in quantity at four active mines in Canada, the United States, Argentina and Turkey. The Canadian, US and Turkish operations mainly produce gold, while the Puna operation is Argentina’s largest silver mine. While SSR missed both the high and low estimates from its last quarterly report, for production numbers for the year 2020, the company stuck to previously set guidance. Gold production for the year reached 643,000 ounces, of which 31% was in the fourth quarter. Silver production at the Puna mine reached 5.6 million ounces, exceeding indicative figures. Fourth quarter production represented 39% of the total. Last November, the company announced that it would begin a dividend policy from 1Q21. The “basic dividend” will be set at 5 cents per share, or a yield of 1%; as with KGC above, the key point is not whether the dividend is high or low, but whether management starts paying it – a sign of confidence in the future. Langton bases his assessment of SSRM on his strong free cash flow forecast, writing: “At current gold futures prices, we estimate that SSR will generate nearly 400mm FCF in 2021 and around 500mm per year. from 2022 to 2024. In addition, from a 2021 base, we forecast that the SSR would generate 2021-2025 cumulative FCF of US $ 2.3 billion, or about 59% of its current market capitalization… ”In accordance with In his comments, Langton is putting an overweight (ie buy) rating on the stock, with a price target of $ 24 that indicates a 60% rise for the next 12 months. (To look at Langton’s track record, click here) There are 8 recent reviews of SSRM stocks – and each of them is a buy, which makes the Strong Buy analyst consensus rating here unanimous. The stock is selling for $ 15.25 and its robust average price target of $ 28.78 suggests a high 89% year-over-year rise. (See SSRM market analysis on TipRanks) Newmont Mining (NEM) Last on the list, Newmont, is the world’s largest gold miner, with a market capitalization of $ 45.78 billion and active production in a variety of metals, including gold, silver, copper, zinc and lead. The company has assets – both operations and prospects – in North and South America, Africa and Australia, and is the only gold miner listed on the S&P 500. With the latter detail to the Mind, it’s worth noting that NEM stocks have risen 29% over the past 12 months – more than the S&P’s 16% gain over the same period. In 3Q20, the company posted sales of $ 3.12 billion. Although this missed the forecast, it improved 5.4% from the third quarter of the previous year. Third quarter results were also a record for the company, with free cash flow of $ 1.3 billion. Lower than expected results were also a common pattern for the company’s 2020 performance in Q1 and Q2. The corona crisis depressed the results, but even the depressed results increased year over year. Newmont has an active return of capital program for shareholders. Since the start of 2019, the company has used both dividends and share buybacks to return capital to stakeholders, to the tune of $ 2.7 billion. Last January, Newmont announced a $ 1 billion lawsuit against share buybacks. For 2021, the company also announced a new dividend framework, setting the base payout at $ 1 per share annualized, and reiterated its commitment to return on capital. JPM’s Michael Glick led the rating on Newmont, beginning by acknowledging the strong production of the company: “We expect gold production attributable to NEM to remain relatively stable over the 2021-2025 period at around 6.5. -6.7 mm oz… ”. Future production prospects Glick went on to say, “In terms of production, the expansion underway at Tanami should allow additional production and lower cash costs from 2023. Additionally, we expect Newmont to approve its projects. Ahafo North and Yanacocha Sulfides this year, which is expected to result in additional production for the company after the projects’ development deadline of approximately three years. Glick likes FCF and Newmont’s production numbers, using them to support his overweight (buy) rating. Its price target of $ 83 implies a 46% hike for the coming months. (To look at Glick’s track record, click here) Newmont, for all his strength, still gets a moderate buy rating from analyst consensus. This is based on 8 reviews, including 5 purchases and 3 holds. The average price target is $ 74.97, which suggests a growth margin of 31% from the current price of $ 56.99. (See NEM Stock Market Analysis on TipRanks) For great ideas for gold stocks trading at attractive valuations, visit TipRanks Best Stocks to Buy, a newly launched tool that brings together all the information about TipRanks stocks. Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Source link
