The topic 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 be a valuable hedge in a broadly invested portfolio and can add uncorrelated returns during the most challenging periods.
Gold Quietly Outperforming the Stock Market
Most notably, gold has outperformed the US stock market YTD, and over the last three months the outperformance has been even more stark. Additionally, since the start of 2022, Gold has outperformed the S&P 500 by a significant margin – gold prices are up 28%, while the stock index is up 14.5% in that time.
Rather than just investing in the commodity, another way to gain exposure is through gold mining companies, which offer the advantage of benefiting from gold price appreciation, but also, they produce earnings.
Barrick Gold GOLD, Agnico Eagle Mines AEG and Harmony Gold HMY are three top ranked gold mining companies investors may want to consider adding to their portfolios.
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Barrick Gold: Diversified Mining Behemoth
Barrick Gold Corporation is one of the world’s leading gold mining companies, headquartered in Toronto, Canada. Founded in 1983, Barrick operates mines and projects across North America, South America, Africa, and the Middle East. The company is known for its extensive gold reserves, efficient production processes, and commitment to sustainable mining practices.
Barrick also produces significant amounts of copper, which offers an additional bullish catalyst as it is another metal surging higher this year.
Reflecting strongly upward trending earnings revisions, Barrick Gold enjoys a Zacks Rank #1 (Strong Buy) rating.
As can be seen below, analysts have unanimously raised earnings across timeframes. EPS are forecast to grow 26.2% this year and 31% next year, while sales are expected to climb 10.5% both this year and next.
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From a purely fundamental perspective, Barrick Gold is probably the most appealing stock of the bunch. In addition to its sheer size, it also has the strongest projected EPS growth, as well as the cheapest valuation from a historical perspective.
Today it is trading at a one year forward earnings multiple of 16.7x, which is below the industry average and below its 10-year median of 20.9x. And with earnings projected to increase 38% annually over the next 3-5 years, GOLD has a PEG ratio of just 0.44.
Finally, Barrick pays a tidy 2.3% dividend yield, further sweetening the deal for shareholders.
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Agnico Eagle Mines: Huge Earnings Growth Forecasts
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 currently has a number of compelling bullish catalysts for investors to consider. Over the last month, earnings estimates have snapped higher, boosting the stock to a Zacks Rank #1 (Strong Buy) rating.
FY24 earnings estimates have increased by 38% and FY25 by 31%. Additionally, over the next three-to-five years EPS are forecast to grow at a stunning 30.2% annually.
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AEM is currently trading at a one year forward earnings multiple of 21.5x. This is well below its 10-year median of 43x and just above the industry average. But as we mentioned, analysts are anticipating EPS to climb significantly higher over the next three-to-five years.
So, based on growth estimates the valuation is likely also at a discount. Agnico has a PEG ratio of 0.72, which is a discount based on the metric.
Finally, it is worth noting that Agnico Eagle Mines pays a 2.3% dividend to shareholders.
Harmony Gold: Impressive Stock Price Appreciation
Harmony Gold HMY is a South Africa based gold mining company and conducts underground and surface gold mining. It is also engaged in related activities such as exploration, processing, smelting and refining. Harmony is South Africa’s biggest gold producer by volume with production of 1.47 million ounces in fiscal year 2023. Harmony also pays a 1.35% dividend yield.
Like the others, Harmony Gold boasts a Zacks Rank #1 (Strong Buy) rating. Analysts have boosted earnings estimates for this year by 17.5%, and 35% for next year. EPS for those periods are also expected to climb 109% and 44% YoY respectively.
Moreover, thanks to the richness of the Wafi-Golpu project, which is estimated to produce some 500,000 ounces of gold, revenues are forecast to grow in the mid-teens this year and next year.
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Harmony Gold has also been the best performing stock of this group YTD, massively outperforming the underlying commodity and broad market. Strong momentum along with the top Zacks Rank makes Harmony Gold a must watch stock.
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How Gold Fits in your Portfolio
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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Aegon NV (AEG) : Free Stock Analysis Report
Harmony Gold Mining Company Limited (HMY) : Free Stock Analysis Report
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
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