The price of gold hovers just below its all-time high, capturing the attention of investors as it again tests record levels.
The idea of investing in gold can elicit a wide range of responses from people, from strong vitriol to deep praise. You have the gold bugs on one end, whose portfolios are dominated by the yellow metal, and on the other end you have investing purists, who claim because it has no earnings, it has no place in their portfolio. As with most things in life and investing, the truth lies somewhere in the middle of those two perspectives.
Gold has been a store of value for thousands of years, and though it has not made the same long-term returns as US equities, it can in fact be a valuable hedge in a broadly invested portfolio and can add uncorrelated returns during the most challenging periods.
Furthermore, the shiny metal has put up strong returns YTD, outperforming both equities and US treasuries. Even more impressive is its returns since the start of 2022, which also bests the returns of both stocks and bonds.
Barrick Gold (GOLD), Agnico Eagle Mines (AEM) and Eldorado Gold (EGO) are top ranked gold mining stock with bullish tailwinds that investors may consider buying to gain exposure to the yellow metal.
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Advantages of Gold Miner Stocks
Going back to the investing purists, who scoff at the idea of investing in a commodity with no earnings, they do make a reasonable point. However, there is one way to both invest in gold, and benefit from earnings growth.
Gold mining stocks offer the advantage of getting exposure to gold, while also offering an income stream through dividends, which are paid from the profits of running a gold mine.
Of course, they aren’t perfect and it’s important to be aware of the risks, including operational challenges and geopolitical factors that can impact mining activities.
I think ideally, if you like the idea of investing in gold, you may have some mix of direct investment in the commodity by investing through the SPDR Gold Shares ETF GLD or physical gold, as well as some mining stocks.
Barrick Gold Anticipates Huge Profit Growth
Barrick Gold, one of the world’s leading gold producers, currently presents a highly compelling investment opportunity. This week, the company posted a hefty earnings beat with net earnings growing 25% year over year (YoY) and forecasts of earnings growth above 30% annually over the next three to five years.
Additionally, the stock has a Zacks Rank #2 (Buy) rating and a valuation that appears to be a discount relative to both historical averages and growth. Earnings estimates have increased across the bord with FY24 EPS being lifted by 14.2% in the last month. And if the price of gold can continue to rally, Barrick’s margins will only expand.
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Today, Barrick Gold is trading at a one year forward earnings multiple of 16.6x, well below the market average and below its 10-year median of 20.7x. Additionally, as mentioned above, the valuation is quite cheap when incorporating growth into the calculation.
Based on its EPS growth forecasts of 32.9% annually over the next three to five years, GOLD has a PEG ratio of just 0.5, which is extremely compelling based on the metric. Barrick also offers a 2.1% dividend yield.
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Agnico Eagle Mines Shares Trade at a Discount
Toronto-based Agnico Eagle Mines AEM is a gold producer with mining operations in Canada, Mexico and Finland, and exploration activities in Canada, Europe, Latin America, and the United States.
Agnico Eagle Mines also enjoys a Zacks Rank #2 (Buy) rating, reflecting upward trending earnings revisions. Analysts have near unanimously raised earnings estimates across timeframes and are expecting continued growth in the years to come. EPS are projected to grow 28.2% annually over the next three to five years.
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AEM is currently trading at a one year forward earnings multiple of 21.3x. This is well below its 10-year median of 43x and just below the market average. But as we mentioned, analysts are anticipating EPS to climb significantly higher over the next three to five years.
Based on growth estimates the valuation is likely also at a discount. Agnico has a PEG ratio of 0.75, which is a discount based on the metric.
Finally, it is worth noting that Agnico Eagle Mines pays a tidy 2.3% dividend to shareholders.
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Eldorado Gold Stock Boasts Strong Earnings Revisions
Eldorado Gold is a gold producing and exploration company with gold assets in Brazil and Turkey. Based on its Zacks Rank and valuation, Eldorado Gold might be the most compelling stock in the group.
Today, the stock has a Zacks Rank #1 (Strong Buy) rating, indicating strongly upward trending earnings revisions. Next quarter, this year and next year’s earnings estimates have been revised higher by huge margins, likely drawing new investors to the stock and pushing it higher.
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Eldorado Gold is trading at a one year forward earnings multiple of 13.1x, which is well below the market average and its 10-year median multiple of 31.4x. EGO is the cheapest stock of the bunch based on its historical averages and from an absolute measure.
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How to Allocate to Gold
In my own research, I have found that over the long-term, a portfolio allocation to gold of 5%-15% gets you much of the diversification and hedging benefits of owning the commodity. More exposure than that and you may miss out on some of the returns from traditional stocks.
So, for investors who have been prompted to invest in gold by the tremendous momentum seen in recent years, you have good reason to add some of the shiny metal to your portfolio.
Finally, by focusing on the highest quality gold mining stocks, investors have the opportunity to both benefit from the rising price in gold, and a growing business.
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Agnico Eagle Mines Limited (AEM) : Free Stock Analysis Report
SPDR Gold Shares (GLD): ETF Research Reports
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
Eldorado Gold Corporation (EGO) : Free Stock Analysis Report
