Inherently, the idea of gold stocks generates controversy in some circles because of its relevance – or lack thereof. Often labeled as a “barbarous relic,” the yellow metal is exactly that, a commodity. It has no distinction from other variants of the same element. And it neither produces no earnings nor pays dividends. Some might say it’s useless until something goes wrong.
If CNN is any barometer, then we’re skating on some thin geopolitical ice. As a recent article pointed out in its headline, “[t]he world is a mess and Wall Street isn’t paying attention.” Now, I wouldn’t say that the Street is ignoring the various flashpoints happening throughout the world. However, it’s oddly bullish despite the cacophony. Of course, this dynamic could change, thus warranting a closer look at gold stocks.
To be sure, we’re dealing mostly with mining-related enterprises. However, gold tends to benefit from the fear trade. And increased demand should be good for the mining ecosystem.
On another level, if the Federal Reserve goes through with interest rate cuts, the dollar would likely continue its longstanding devaluation. And that should also benefit precious metals due to wealth preservation. With the sector possibly becoming relevant again, it’s time to consider these gold stocks.
BHP Group (BHP)
One of the top-tier metals and mining enterprises in the world, BHP Group (NYSE:BHP) offers an excellent idea for conservative investors interested in gold stocks to buy. A diversified mining stalwart, BHP produces both gold and silver as a byproduct of copper production at the Olympic Dam project, located a few hundred miles north of Adelaide, South Australia.
For investors concerned about the ebb and flow of the commodities market, BHP brings some reassurances to the table because of its vast portfolio. As one of the biggest mining companies, BHP isn’t reliant on any single commodity. For example, at the aforementioned Olympic Dam, the mining firm uranium. Thanks to the asset’s supply shortage, uranium alone could help move the needle for BHP stock.
Another factor to consider when assessing the Melbourne, Australia-based company is its attractive financials. Currently, shares trade at 9.07X forward earnings, favorably below the sector median value of 10.9X. In addition, the company enjoys consistent profitability, backed by strong margins across the board. For a dependable idea among gold stocks that won’t leave you stranded, BHP should be on your radar.
For sector advocates seeking the undisputed kingpin of gold stocks, Newmont (NYSE:NEM) reigns supreme. This Denver-based titan boasts the title of world’s largest gold producer. It commands a sprawling footprint, extracting the precious metal from projects located in North and South America, Africa and Australia. Its diverse portfolio of mines mitigates risk, ensuring a steady flow of gold even when individual projects encounter hiccups.
Primarily, NEM ranks among the top gold stocks because of its size and dominance. However, it’s also an exploration powerhouse. Its aggressive hunt for new deposits secures long-term growth, keeping investors confident in its ability to replenish reserves and maintain its production crown. Plus, Newmont carries a forward dividend yield of 4.52%, well above the materials sector’s average yield of 2.82%.
Notably, Newmont also maintains a commitment to responsible mining practices. That could help sway the younger generation of investors who are focused on environmental stewardship. Analysts peg shares a consensus moderate buy with a $48.08 price target. While NEM suffered a rough outing in the past one-year period, it could be due for a comeback based on cynically favorable fundamentals.
Wheaton Precious Metals (WPM)
Crave gold exposure without the mining headaches? When you acquire typical gold stocks, you enjoy significant upside potential. However, the downside is that you don’t know what you’re getting until you get it (or don’t). And that’s where Wheaton Precious Metals (NYSE:WPM) comes into play. This Vancouver, British Columbia-based company isn’t a miner; no, instead it’s a streaming company.
Mainly, Wheaton secures long-term gold and silver streams from existing mines in exchange for upfront payments. The benefit here is predictability. Because the terms are pre-established, WPM generally avoids some of the wild ebb and flow associated with pure-play gold stocks. Still, that also means that upside could be mitigated. It’s something to watch out for, though Wheaton makes a solid case for portfolio diversification.
Now, it’s also fair to point out that WPM stakeholders pay for the predictability in another way: shares aren’t cheap. Trading at almost 37X forward earnings, WPM represents an 88%-plus premium to the sector median. However, it does benefit from consistent profitability and robust margins. Therefore, it’s worth a look.
Similar to Wheaton, Franco-Nevada (NYSE:FNV) isn’t a pure-play participant among gold stocks. Instead, it’s a royalty firm, inking pre-arranged deals with mining enterprises. In this manner, Franco-Nevada benefits from pricing predictability. Now, the difference between a royalty and a streaming company is that the former involves receiving a fixed percentage of revenue in exchange for upfront capital. Streaming companies receive physical metals.
Another element that attracts investors to FNV is its conservative, risk-mitigated approach. The company’s leadership team meticulously chooses established, low-cost mines for its partnerships. In doing so, it prioritizes steady, predictable cash flows over high-risk exploration gambles. Still, shares lost a considerable amount of equity value in the past 52 weeks and that’s due to the forced shutdown of the Cobre Panama project due to a judicial setback.
However, the underlying fundamentals – the aforementioned headwind notwithstanding – remain positive. Further, analysts aren’t giving up on Franco-Nevada, pegging shares a consensus moderate buy with a $147.79 average price target. Backed by solid long-term revenue growth and healthy profit margins, FNV should be on your contrarian radar.
Agnico Eagle Mines (AEM)
For adventurous gold prospectors, Agnico Eagle Mines (NYSE:AEM) presents an attractive opportunity. This Canadian explorer-producer hybrid scours the globe for hidden gold treasures, from the frozen tundra of Canada to the sun-drenched plains of Mexico. Its brownfield expansion strategy – meaning that it focuses on unearthing new veins near existing mines – minimizes risk and maximizes efficiency.
To be sure, I could have gone with gold stocks that represent pure-play exploration firms. It would make sense given the natural flow of this article. However, exploration-only companies tend to be extremely risky and lack confident predictability. At least with Agnico, you’re dealing with a revenue and income-generating enterprise. Also, shares trade at 9.18X trailing-year earnings, below the sector median 15.1X.
Another factor that distinguishes Agnico from its pure-play counterparts is that it pays a dividend; specifically, a forward yield of 3.27%. Yes, its payout ratio is elevated at just under 70%. Still, it’s within a somewhat reasonable range. Also, analysts rate AEM a unanimous strong buy with a $61.78 price target. Thus, it’s one of the gold stocks worth putting on your radar.
Alamos Gold (AGI)
Another Canadian gold producer and explorer vying for your attention is Alamos Gold (NYSE:AGI). But unlike Agnico Eagle’s global reach, Alamos primarily focuses on near-mine exploration, squeezing every ounce of potential from its existing Canadian and Mexican operations. This “dig deeper” approach minimizes exploration costs and speeds up the path to production, potentially translating to quicker returns for investors.
Now, at least for the time being, those aren’t just pretty words I wrote down. In the past 52 weeks, AEM incurred a market loss of over 15%. In contrast, AGI popped up more than 4% during the same period. So, the little details among gold stocks can translate to tangible performance variances.
Now, where Alamos does fall a little short with its rival is in the passive income department. With a forward yield of only 0.83%, it’s a little light to put it diplomatically.
Still, to make up for it, the company enjoys strong profitability margins across the board. As well, its return on asset (ROA) clocks in at 5.42%, beating out over 90% of its peers. Lastly, analysts peg shares a moderate buy with a $16.12 price target.
A-Mark Precious Metals (AMRK)
Venturing beyond the mine shafts, A-Mark Precious Metals (NASDAQ:AMRK) offers a unique gold experience – at least as far as gold stocks are concerned. This U.S.-based retailer isn’t about extracting gold; rather, it’s about putting it in your hands. Through online and physical stores, A-Mark caters to gold enthusiasts of all stripes, from seasoned investors to casual collectors.
Off the top, the A-Mark identity might not resonate immediately with investors. However, the company provides direct-to-consumer services through its wholly owned subsidiaries. These brands include powerhouses like JM Bullion and Goldline. While physical gold ownership is cumbersome – and kinda scary if people know where you live – it’s apparently a popular practice.
If I may be blunt, bullion retailers generally thrive on certain ideologies – and I’m not talking Republican or Democrat. Rather, the arena tends to fall under the doom-and-gloom narrative. But here’s the (cynically) good part: fear sells.
If you can’t titillate your customers, you can try to scare them. And with paranoia running high, A-Mark is operating in a metaphorical gold mine. Analysts recognize that potential, rating shares a unanimous strong buy with a $41.67 average price target.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.