JP Morgan Says These 3 Gold Stocks Could Rise 40% (or More)
Let’s talk about gold. The precious metal is the traditional safe-haven investment, backed by its use – 5,000 years ago – as a reliable store of value. Investors looking to protect their portfolios and secure their wealth have traditionally bought gold heavily, and the price of gold has sometimes been used as an indicator (albeit an inverse) of general economic health. In a recent report, investment firm JP Morgan took a long look at the state of the gold industry – specifically, the gold mining industry. Analyst Tyler Langton points to an underlying paradox in two basic facts about gold mining. “Over time, in a commodities business, the cheapest producers with the longest assets tend to be the relative winners… Gold mines, relative to base metals, generally have much shorter (sic) mine lives, and gold miners need to focus on replacing reserves to maintain production levels,” Langton noted. At first glance, Langton’s paradox may appear to be away from massive investment in gold mining. After all, they are high-risk commodity producers. But the current times are actually quite good for gold miners. Prices are high compared to recent years the metal now costs just under $1,800 an ounce, but peaked above $2,000 in August last year at the height of the corona shutdowns, and was as low as $1,200 dollars just 18 months ago The current high prices s bode well for producers. Langton affirms his belief that there is support for current prices, with gold and gold mining seen as a hedge against “macro uncertainty”. He believes the main sources of support will be found in “real interest rates that will stay lower for longer and COVID-19-related stimulus measures that will continue to expand central bank balance sheets.” With that in the background, Langton and his colleagues began picking gold mining stocks that they see as winners in the current environment. Unsurprisingly, they like companies that demonstrate discipline in M&A activity, focus on free cash flow, and deliver strong shareholder returns. Using the TipRanks database, we pulled out the details of several of their recent picks. Are they as good as gold? Analysts seem to think so; all are valued for purchase and potentially offer a significant advantage. Kinross Gold Corporation (KGC) First of all, Kinross Gold is a mid-cap company – valued at $8.6 billion – with active mining operations in the United States, Brazil, West Africa and Russia. Together, these operations have proven and probable gold reserves of 29.9 million ounces. The company is targeting total production of 2.4 million ounces for 2021, which will increase to 2.9 million ounces by 2023. The profitability of the company can be seen by the cost of sales per ounce, at 790 $, and the all-in sustaining cost, at $1,025 per ounce. . With gold currently selling at $1,782 on commodity exchanges, Kinross’ short-term success is evident. Two sets of statistics highlight Kinross’ profitability. First, the company’s recent quarterly earnings record shows a steady increase in revenue and profit. Aside from a drop in 1Q20, at the onset of the corona crisis, Kinross’ revenues have been growing steadily since the start of 2019 – and even in 2020, every quarter saw a year-over-year increase. After 7 years without dividend payments, Kinross has taken advantage of its strong performance in recent months to restore the company’s dividend. Payments are still made irregularly, but since the September 2020 announcement of the dividend reinstatement, two payments have been made and a third has been announced for March this year. Each payout was 3 cents per share, which translates to a modest 1.6% return. The key point here is not the strength of the yield, but rather the confidence that management has shown in the short to medium term by resuming dividend payments. Based on current production projections, payments are expected to continue through 2023. Tyler Langton, in his notes on Kinross, comes to an upbeat conclusion: “Given its expected growth plans and its pipeline of additional , we believe Kinross will be able to maintain average annual production of 2.5 mm oz. over the next decade. The company has an attractive cost profile and we expect costs to decline over the next few years. The company should also generate high and attractive levels of FCF at current gold prices, and we expect Kinross to direct this cash towards organic growth projects and its dividend. Consistent with these comments, he selects Kinross as “JPM’s top pick in the gold sector” and classifies the stock as overweight (i.e. a buy). Its price target of $11 suggests upside potential of 61% over the coming year. (To see Langton’s track record, click here) Kinross gets a strong buy recommendation from analyst consensus, based on a 6-to-2 split between buy and hold advice. Wall Street analysts have set an average price target of $11.25, slightly more bullish than Langton’s, and implying a year-over-year upside of 64% from the current trading price of $6.85. (See KGC stock analysis on TipRanks) SSR Mining, Inc. (SSRM) Moving up to northern Canada, we now look at Vancouver-based SSR Mining. It is another mid-cap mining company, producing gold and silver in quantity from four active mines in Canada, the United States, Argentina and Turkey. The Canadian, American and Turkish operations produce mainly gold, while the Puna operation is the largest silver mine in Argentina. Although SSR missed both the revenue and net income estimates in its last quarterly report, for the full year 2020 production figures the company met the previously established guidance. Gold production for the year reached 643,000 ounces, including 31% in the fourth quarter. Silver production at the Puna mine reached 5.6 million ounces, beating indicative figures. Fourth quarter production accounted for 39% of the total. Last November, the company announced that it would launch a dividend policy starting in 1Q21. The “base dividend” will be set at 5 cents per share, or a yield of 1%; as with KGC above, the key point is not whether the dividend is high or low, but that management starts paying it – a sign of confidence in the future. Langton bases his assessment of SSRM on his strong free cash flow forecast, writing, “At current forward gold prices, we estimate that SSR will generate nearly $400 million of FCF in 2021 and about $500 million of dollars per year from 2022 to 2024. In addition, starting from a 2021 base, we project that SSR would generate a cumulative FCF from 2021 to 2025 of US$2.3 billion, or approximately 59% of its current market capitalization …” Consistent with his comments, Langton puts an overweight (i.e. buy) rating on the stock, along with a price target of $24 which indicates a 60% upside for the next 12 months. ( To see Langton’s track record, click here) There are 8 recent SSRM stock reviews – and each one is a buy, making the Strong Buy analyst consensus rating here unanimous. $15.25 and his strong mid price target of $28.78 suggests a high upside of 89% on a year. (See SSRM stock analysis on TipRanks) Newmont Mining (NEM) Last on the list, Newmont, is the world’s largest gold miner, 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 operations and prospects – in North and South America, Africa and Australia, and is the only gold mining company listed on the S&P 500. With that last detail on the Mind you, it’s worth noting that NEM stocks are up 29% over the past 12 months — more than the S&P’s 16% gain over the same period. In 3Q20, the company had revenue of $3.12 billion. Although it fell short of expectations, it improved 5.4% from the third quarter of the previous year. Third-quarter results were also a record for the company, with free cash flow of $1.3 billion. Lower-than-expected results were also a common trend for the company’s performance in 2020 in the first and second quarters. The corona crisis depressed the results, but even the depressed results increased year on year. Newmont has an active return of capital program for shareholders. Since the start of 2019, the company has used both dividends and share buybacks to return capital to stakeholders, to the tune of $2.7 billion. Last January, Newmont announced a continuation of $1 billion in share buybacks. Looking ahead to 2021, the company also announced a new dividend framework, setting the base payout at $1 per share annualized, and reiterated its commitment to capital return. JPM’s Michael Glick led the note on Newmont, beginning by acknowledging the company’s strong production: “We expect gold production attributable to NEM to remain relatively stable over the 2021-2025 period at around 6.5- 6.7 mm oz…” long-term production outlook, Glick continued by saying, “In terms of production, Tanami’s ongoing expansion is expected to drive incremental production and lower cash costs beginning in 2023. Additionally, we expect Newmont to approve its Ahafo North and Yanacocha Sulfides projects this year, which should result in additional production for the company after the projects’ approximately three-year development schedule. Glick likes FCF and Newmont’s production numbers, using them to back up his overweight (buy) rating. Its price target of $83 implies a 46% upside for the coming months. (To see Glick’s track record, click here) Newmont, for all its strength, still earns an analyst consensus Moderate Buy rating. This is based on 8 reviews, including 5 purchases and 3 reservations. The average price target is $74.97, suggesting a growth margin of 31% from the current trading price of $56.99. (See NEM stock analysis on TipRanks) To find great ideas for gold stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all the stock information from TipRanks . Disclaimer: The opinions expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.