In volatile and uncertain markets like this one, gold is often considered a safe haven. No surprise, then, that Canadian gold stocks have made solid gains this year. We’re thinking of two in particular.
Add to that a relatively stable Canadian economic landscape, compared to the woes in other regions of the globe, and you have a recipe for strength in 2016.
So, why do we recommend these stocks? They’re both solid plays amid a market that’s rife with sinking stocks that are poised to tumble even further.
Barrick Gold (ABX)
Barrick Gold is the world’s most valuable gold company.
The company’s year-to-date gains of 36.45% have worked wonders for Barrick’s reputation — cementing its place as a highly reliable crisis haven. With gold climbing up the charts and launching a solid recovery in 2016, mining companies like Barrick Gold are regaining luster.
In fact, the uncertainty in financial markets will consistently drive investors towards gold, pushing prices upwards, benefitting the likes of Barrick Gold.
The company expects its portfolio to deliver a 10%-to-15% return on invested capital through the metal price cycle.
With more than 75% of the company’s gold production coming from the Americas region, Barrick Gold is largely protected from the problems that can occur in areas like Africa and the Middle East.
Analysts expect the company to deliver 36.66% earnings-per-share (EPS) growth for the December 2016 year. This is a solid growth rate compared to peers like Randgold Resources Limited (6.1%), Newmont Mining (-47.27%), Royal Gold (39.6%) and Franco-Nevada (0%).
The company’s dividend yield at nearly 1% isn’t really great — but given the kind of growth the stock is offering, investors could easily overlook the income downside.
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Despite these solid fundamentals, Barrick Gold doesn’t get the premium valuations it deserves, at 24.56 times forward price-to-earnings, compared to Franco-Nevada (83.31 times), Royal Gold (21.90 times), Newmont Mining (35.43times), and Goldcorp (88.77 times). As opposed to a group of highly toxic stocks today, Barrick should weather the down market most analysts expect in 2016.
Agnico Eagle Mines Limited (AEM)
Clearly, if it’s gold you’re looking for, Canada is the place to be.
Agnico Eagle Mines Limited is a red-hot momentum pick, riding the gold wave.
After reporting robust results for the third quarter, all eyes are now on the final quarter earnings — investors are looking at continued reductions in cost, drilling updates and a bold 2016 outlook. With 14.42% year-to-date gains, Agnico has witnessed significant buyer interest over the last few days.
The company’s strategy (for over five decades) of building a high-quality business focused on compact execution (driving growth in cash flow per share) makes solid logic.
Agnico has also been able to curtail financial and political risks, while building long-life, manageable operations in recognized mining regions.
If gold prices continue to inch up as China’s slowdown persists, the stock will rise further.
We also believe that with central banks boosting gold purchases, stocks like Agnico can rise even higher. On the flip side, a certain class of overhyped and overvalued stocks is set to collapse this year.
In fact, the 40% plunge witnessed by gold from 2011 through November 2015 saw major gold producing companies take a tumble — margins slipped by over 60% on an average. Agnico, on the other hand, saw only a 2% decline.
Good operational and exploration success coupled with acquisitions have reinforced Agnico and it could keep pushing forwards, if currency movements act as afavorable tailwind.
With a dividend yield of 1.12% and dividend growth track record of four years, this is a great stock to invest in, especially if you’re looking at gold to bounce further upwards from current levels.
As we’ve explained, Barrick and Agnico are smart plays now, as the market continues to decline. On the flip side, we’ve unearthed several fundamentally flawed stocks that are dismal places for your money today. Problem is, these stocks are widely held in many portfolios, which means a lot of investors will soon get burned. Click here now to make sure you don’t make the mistake of owning one.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.