There have been increasing concerns about accelerating inflation in the United States. The latest data indicate that consumer prices in the U.S. increased the most since fiscal year 2009. The policy response to rising inflation also seems uncertain. Recently, Treasury Secretary Janet Yellen said that “she wasn’t forecasting interest-rate increases to rein in any inflation.” If inflation does remain high with interest rates remaining artificially low, it’s a good time to consider exposure to gold and gold stocks.
It’s also worth noting that after peaking in August 2020, gold has been lower to sideways. Inflation is a big trigger for renewed upside in gold. For decades, the precious metal has been an effective hedge against inflation.
It’s also interesting to note that investors are increasingly looking at Bitcoin (CCC:BTC-USD) as a hedge against inflation. There might be a case for funds flowing into gold and Bitcoin as inflation accelerates. However, with Elon Musk announcing that Tesla (NASDAQ:TSLA) will no longer accept Bitcoin as a payment, the cryptocurrency has witnessed a temporary setback. Gold might be a beneficiary since the latter is less volatile.
Gold stocks have been in a consolidation zone in line with the movement in gold prices. I believe that a breakout on the upside is imminent for gold and gold stocks.
Let’s discuss 4 gold stocks worth holding in the portfolio.
- Newmont Corporation (NYSE:NEM)
- Kinross Gold (NYSE:KGC)
- Kirkland Lake Gold (NYSE:KL)
- Barrick Gold (NYSE:GOLD)
Best Gold Stocks to Buy: Newmont Corporation (NEM)
NEM stock is probably among the top gold stocks to consider. In the last six months, the stock has remained range-bound. However, if gold trends higher, NEM stock can potentially surge.
Newmont has a strong reserve base with 94 million oz of gold reserves that’s diversified across North America, South America, Australia and Africa. This is likely to ensure stable production in the coming years.
In the next few years, Newmont expects to reduce the all-in-sustaining-cost of $850 an ounce (mid-range). Even if gold is trading at $2,000 an ounce, the company is well positioned to deliver healthy EBITDA and cash flows.
To elaborate further, if gold trades at $2,100 an ounce, Newmont expects to generate free cash flow of $21.5 billion over a period of five years. Clearly, as gold trends higher, the company can create value through higher dividends and aggressive share repurchase.
As of first quarter of 2021, the company reported total liquidity of $8.5 billion. With a net-debt-to-adjusted-EBITDAX ratio of 0.2, Newmont has ample financial flexibility for pursuing aggressive growth.
Overall, NEM stock looks attractive with a high-quality asset base, low All-in sustaining costs (AISC) and a strong financial profile. At a forward price-to-earnings-ratio of 22.88, fresh exposure to the stock can be considered.
Best Gold Stocks to Buy: Kinross Gold (KGC)
KGC stock is another interesting name among gold stocks that’s very attractive from a valuation perspective. Currently, KGC stock trades at a forward P/E of 12.9. I will not be surprised if the stock doubles if gold trends higher in the coming quarters.
A key reason to like Kinross Gold is the production guidance. For the current year, the company expects to deliver production of 2.1 million oz. Gold production is expected to increase to 2.9 million oz. by FY2023.
Therefore, the company is likely to benefit from production growth as well as gold price upside. It’s also worth noting that the company acquired 70% stake in Fort Knox project. Production in the asset will commence in FY2024. Additionally, Chulbatkan asset is likely to deliver first production in FY2025. Clearly, production growth will sustain beyond FY2023, and there is ample room for value creation.
For FY2021, the company has guided for AISC of $1,025 an ounce. This is higher as compared to Newmont. However, even if gold trades in the range of $1,800 to $2,000 an ounce, the company can deliver healthy cash flows. Last year, the company reported free cash flow of $1.0 billion.
From a financial perspective, Kinross Gold reported a total liquidity buffer of $2.6 billion as of the first quarter of 2021. Continued FCF will ensure that the company’s balance sheet remain strong and dividends increase in the coming years.
Best Gold Stocks to Buy: Kirkland Lake Gold (KL)
KL stock has been trading in a tight range in the last one-year. With expectations on gold trending higher, the stock seems attractive.
For Q1 2021, the company reported production of 302,847oz of gold at an AISC of $846. The quarterly OCF of $208.2 million implies that the company is positioned to deliver annual cash flow in the range of $800 million to $1.0 billion. This will give ample financial flexibility for investing in growth, dividends and share repurchase.
It’s also worth noting that the company’s Detour Lake asset delivered production of 563,000 ounces in FY2020. For the year, production is expected to increase to 700,000 ounces (mid-range). Further, by FY2025, the company expects production from the asset at 800,000 ounces.
Even for the Macassa project, the company expects production to increase to 425,000 ounces by FY2023. Therefore, if gold price trends higher, Kirkland will be well positioned to deliver operating cash flows that are well in excess of $1.0 billion.
It’s worth noting that Kirkland acquired Detour in January 2020. As financial flexibility increases the company will be positioned for organic and inorganic growth.
Barrick Gold (GOLD)
From a long-term perspective, GOLD stock is another attractive name to consider. The stock has been an under-performer, having declined by 14% in the last year.
However, the company has quality assets and the production profile is likely to remain stable over the next 10 years. It’s worth noting that for Q1 2021, the company reported operating and FCF of $1.3 billion and $0.8 billion respectively.
If gold trends higher, the company is positioned to deliver $2.5 to $3.5 billion in annual free cash flows. Therefore, value creation will continue in the form of dividends and share repurchase. Additionally, as the balance sheet strengthens, the company can potentially pursue acquisition to trigger production growth.
For Q1 2021, the company also reported a high AISC of $1,018 an ounce. However, for investors bullish on gold, even an AISC of $1,000 to $1,200 would deliver robust cash flows.
Overall, GOLD stock looks attractive at a P/E of 20.9. After under-performing in the last one year, the stock seems positioned to trend higher if the momentum for gold is positive.