JP Morgan says these 3 gold stocks could rise 40% (or more)
Let’s talk about gold. The precious metal is the traditional investment in a safe haven, which is supported by its use – 5,000 years ago – as a reliable store of value. Traditionally, investors looking to protect their portfolios and safeguard their wealth have bought heavily in gold, and the price of gold has sometimes been used as an (albeit reversed) indicator of overall economic health. In a recent report, investment firm JP Morgan took a long look at the state of the gold industry – particularly gold mining. Analyst Tyler Langton points out an underlying paradox in two fundamental facts about gold mines. “Over time, in a commodities business, the lowest cost and longest life producers are usually the relative winners … Gold mines tend to have a much shorter lifespan (sic) than base metals, and gold miners have to do this Focus on replacing reserves to keep production levels up, ”noted Langton. At first glance, Langton’s paradox seems to indicate high investments in gold mines. After all, they are high-risk raw material producers. But the current times are actually pretty good for gold miners. The prices have increased compared to the last few years; The metal currently costs just under $ 1,800 an ounce, but hit a high of over $ 2,000 in August last year at the height of the corona shutdowns and was as low as $ 1,200 just 18 months ago. The current high prices are a good sign for producers. Langton states his belief that current prices will be supported, with gold and gold mines viewed as a hedge against “macroeconomic uncertainty”. He believes the main sources of support will be “real interest rates stay lower longer and the COVID-19-related stimulus measures keep central bank balance sheets”. With that in mind, Langton and his colleagues have begun picking the gold mining stocks that they see as winners in the current environment. Unsurprisingly, they like the companies that display discipline in M&A activity, a focus on free cash flow, and solid returns for shareholders. Using the TipRanks database, we got the details of some of their recent picks. Are they as good as gold? The analysts seem to think so; All of them are rated buy and may have a significant upward trend. Let’s take a look at it. Kinross Gold Corporation (KGC) First off, Kinross Gold is a mid-cap company valued at $ 8.6 billion with active mining operations in the US, Brazil, West Africa and Russia. Taken together, these operations have proven and probable gold reserves of 29.9 million ounces. The company expects total production of 2.4 million ounces in 2021, increasing to 2.9 million ounces by 2023. The company’s profitability is measured by the cost of sales per ounce of $ 790 and the total cost of maintaining it of $ 1,025 per ounce. With a gold price of currently USD 1,782 on the commodity exchanges, Kinross’ short-term success is clear. Two sets of statistics show Kinross’ profitability. First, the company’s recent record for quarterly results shows steadily increasing sales and profits. Aside from a decline in Q1 20 at the start of the corona crisis, Kinross sales have grown steadily since early 2019 – and even in 2020, every quarter was up year-over-year. After 7 years with no dividend payments, Kinross used its strong performance over the past few months to restore the company’s dividend. Payments are still irregular, but since the announcement in September 2020 that the dividend would be reinstated, two payments have been made and a third announced for March this year. Each payment was for 3 cents per share, which equates to a modest return of 1.6%. The decisive factor here is not the strength of the return, but the trust that the management has shown in the short to medium term through newly started dividend payments. Based on current production projections, payments are expected to continue through 2023. Tyler Langton is optimistic in his comments on Kinross: “Given the expected growth projects and the pipeline of additional projects, we believe Kinross will be able to maintain this average annual production of 2.5mm ounces. in the next decade. The company has an attractive cost profile and we assume that costs will decrease in the next few years. The company should generate attractive, strong FCF levels even at current gold prices, and we expect Kinross to use that money on internal growth projects and its dividend. In line with these comments, he picks Kinross as JPM’s “top gold pick” and rates the stock as overweight (ie buy). His target price of $ 11 suggests upside potential of 61% in the coming year. (To see Langton’s track record, click here.) Analyst consensus gave Kinross a strong buy recommendation based on a 6 to 2 split between buy and hold ratings. Wall Street analysts have set an average price target of $ 11.25, which is slightly more bullish than Langton’s and represents an upward trend of 64% from the current trading price of $ 6.85 for a year. (See KGC stock analysis on TipRanks.) SSR Mining, Inc. (SSRM) Heading north into Canada, let’s take a look at SSR Mining in Vancouver. This is another medium-sized mining company that produces high volume gold and silver from four active mines in Canada, the United States, Argentina, and Turkey. The Canadian, US, and Turkish operations produce primarily gold, while the Puna operation is Argentina’s largest silver mine. Although SSR missed both the top and bottom line estimates in its most recent quarterly report, the company has met guidelines previously set for full-year 2020 production numbers. Gold production for the year was 643,000 ounces, 31% of which was from the fourth quarter. Silver production at the Puna mine reached 5.6 million ounces, exceeding benchmarks. Production in the fourth quarter was 39% of total production. Last November, the company announced that it would initiate a dividend policy from Q1 21. The basic dividend is set at 5 cents per share or a yield of 1%. As with KGC above, the bottom line isn’t whether the dividend is high or low, but management is starting to pay it out – a sign of confidence in the future. Langton bases his assessment of SSRM on his strong free cash flow forecast and writes: “At current gold forward prices, we estimate that SSR will be almost USD 400 million FCF in 2021 and around USD 500 million from 2022 to 2024 will generate each year. On a 2021 basis, we also forecast that SSR will generate a cumulative FCF of $ 2.3 billion, or around 59% of its current market cap, from 2021 to 2025 … ”Consistent with his comments, Langton puts an overweight (i.e. Purchase) firmly. Rating on the stock, along with a price target of $ 24 indicating an uptrend of 60% for the next 12 months. (To see Langton’s track record, click here.) There are 8 recent reviews of SSRM stock – and each and every one of them is a buy, so the consensus rating from analysts at Strong Buy is unanimous here. The stock is selling for $ 15.25, and the robust average price target of $ 28.78 suggests a steep upward trend of 89% in a year. (See SSRM stock analysis on TipRanks) Newmont Mining (NEM) Newmont Mining is the world’s largest gold mining company 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 operational and potential – in North and South America, Africa and Australia and is the only gold mining company listed on the S&P 500. Given that final detail, it should be noted that NEM stocks are up 29% in the past 12 months – more than the S&P profit of 16% over the same period. In the third quarter of 20, the company had sales of $ 3.12 billion. Although this missed the forecast, it improved by 5.4% compared to the third quarter of the previous year. The third quarter results were also a company record with free cash flow of $ 1.3 billion. Results that were below expectations were also a common pattern of the company’s 2020 performance in the first and second quarters. The corona crisis weighed on results, but even the depressing results rose year over year. Newmont has an active return on investment program for shareholders. As of early 2019, the company has used both dividends and share buybacks to return $ 2.7 billion of capital to stakeholders. Last January, Newmont announced a continuation of its $ 1 billion share buyback. Looking ahead to 2021, the company has also announced a new dividend framework, setting the base payment at $ 1 per share on an annual basis, and reaffirming its commitment to return on capital. JPM’s Michael Glick led the announcement to Newmont, first appreciating the company’s strong production: “We forecast that NEM attributable gold production will remain relatively constant at around 6.5 to 6.7 mm ounces over the 2021-2025 period … ”Mid-Company Short-Term Production Outlook Glick continued,“ In terms of production, Tanami’s continued expansion should enable incremental production and lower cash costs from 2023 onwards. We also expect Newmont to approve its Ahafo North and Yanacocha Sulfides projects this year. This should lead to a step-by-step production for the company after the approximately three year development period of the projects. “Glick likes Newmont’s FCF and production numbers and uses them to back up his overweight (buy) rating. His target price of USD 83 implies an upward trend of 46% for the coming months. (To see Glick’s track record, click here.) Newmont, despite its strength, still receives a moderate buy rating from analyst consensus. This is based on 8 ratings, including 5 buys and 3 holds. The average price target is $ 74.97, which indicates a 31% growth from the current trading price of $ 56.99. (See TipRanks NEM Stock Analysis.) To find great ideas for trading gold stocks at attractive valuations, visit TipRanks ‘Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock insights. Disclaimer: The opinions expressed in this article are solely those of the presented analysts. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.