3 Gold Stocks Set to Sparkle in Q1 Earnings

Gold is enjoying a bullish run this year, outshining itself in almost three decades. Gold rose 17% in dollar terms in the first quarter, making it the best performing asset, trumping major equity indices, investment grade and high yield bonds and commodity indices.

The rally in gold prices has been triggered by major volatility in the global equity markets, as concerns loomed large over the health of the global economy, Chinese weakness and its effect on the rest of the world. Gold, which is considered a safe haven asset and a hedge against inflation, is continuing to gain during these turbulent times.

Gold price also benefited from strong investment inflows in the first quarter. For gold ETFs, it was the second strongest quarter on record as demand from the U.S., Europe and China as well as other regions went up to 363 tons.

Other factors that are helping gold prices are the weaker U.S dollar and Federal Reserve's dovish policy stance. Federal Reserve's latest policy meeting in March showed caution over U.S. interest rate hikes, which led to a weakening of the dollar and helped lift gold prices. Since its December lift-off, the Fed has slowed down the projected pace of subsequent increases in response to a weak global economy. A delay in interest rate hikes elevates demand for gold which produces no income but relies on price appreciation to attract investors.

Recently, the International Monetary Fund cut its global economic growth forecast to 3.2% for 2016 from its earlier forecast of 3.4% citing low oil prices , China's slowdown and chronic weakness in advanced economies. Sluggish economic growth and apprehensions of lackluster first-quarter earnings are currently some of the biggest headwinds for the stock market, which play into the benefits of gold.

This week started with a spike in gold prices as it benefited from the news that major producer nations have failed to reach an agreement on cutting output at the much anticipated oil producers' meeting in Doha over the weekend.

Gold prices will get support from retail demand for gold in the second half of the year, which is seasonally strong for India and China. Another factor that will eventually be a tailwind for gold is that the supply of the precious metal has already attained peak levels as per reports. Global production of gold is likely to decline by 3% in 2016, thus ending a 7-year stint of rising output. Lower mined gold supply could help prices navigate north.

Numbers So far

As per the Zacks classification, the gold-mining industry comes under the broader Basic Materials sector. Only 10% of the companies in the sector have reported their first-quarter results so far, putting up a 34% drop in earnings on the scoreboard. Taking into account all the companies that are yet to report, a 23.7% drop is projected for the first quarter.

Though earnings are expected to decline 14.1% in the second quarter, a dramatic recovery is projected for the latter half of the year with 2.8% growth in the third and 16.8% in the fourth. (For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.)

The gold mining industry currently has a Zacks Industry Rank of 52 out of more than 250 industries, depicting a favourable position. As the first quarter earnings season gathers steam, it makes sense to bet on gold miners that have the potential to beat earnings in their upcoming releases. A beat backed by earnings growth and a positive outlook for the industry would instil investor confidence in the stocks leading to immediate price appreciation.

How to Make a Choice?

With a number of players in the industry, picking the right stocks is a daunting task. However, the Zacks proprietary methodology makes it easier. One can narrow down the list with the combination of a favorable Zacks Rank - Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) - and a positive Earnings ESP , which is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. It helps in picking stocks that have high chances of delivering earnings surprises in their next earnings announcement. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Here are three gold mining stocks that have this compelling combination and are set to surprise this earnings season.

Barrick Gold Corporation ( ABX )

Toronto, Canada based Barrick Gold is the largest gold mining company in the world. The company boasts numerous exploration and development projects in advanced stages located across five continents.

Shares of Barrick Gold that has a market capitalization of $18.51 billion surged 121.14% year to date and has outperformed the S&P 500 by 115.15% over the same timeframe. The company has expected long term earnings growth of 23%.

This Zacks Rank #3 stock has an Earnings ESP of +12.50%. The Zacks Consensus Estimate for the first quarter currently stands at 8 cents per share. This reflects a 63.33% year-over-year rise in earnings. The company has delivered an average earnings surprise of 11.91% in the past four quarters.

Barrick has a healthy liquidity position and cash flows, which position it well to take advantage of attractive development, exploration and acquisition opportunities. The company continues to make high-return investments in its businesses. Barrick is making significant progress with its cost and efficiency improvement programs including overhead expense cut, portfolio optimization and headcount reductions.

Barrick Gold is expected to report first-quarter results after the market closes on Apr 26.

Agnico Eagle Mines Limited ( AEM )

Agnico Eagle Mines is a Toronto, Canada based gold producer with operations in Canada, Finland and Mexico, and exploration and development activities in Canada, Finland, Mexico and the U.S.

The company has a market capitalization of $8.97 billion with a long-term expected earnings growth rate of 1%. Year to date, Agnico-Eagle's share price gained 57.88% and outperformed the S&P 500 by 53.6%.

Agnico Eagle has a Zacks Rank #3 with an Earnings ESP of +100.00%. Analysts have become more optimistic on the company given that the expectation has gone up from break even results in the first quarter to earnings of 2 cents per share over the last 30 days. The company has delivered an average earnings surprise of 33.33% in the past four quarters.

Agnico-Eagle maintains a solid exploration budget and is reinvesting in its assets to expand output. The acquisition of Osisko is expected to be accretive to Agnico-Eagle and will also improve its total cash cost and all-in sustaining cost profiles. The company has also secured access to Canadian Malartic, the largest producing gold mine in Canada which has the potential to produce an average of roughly 600,000 gold ounces per year for 14 years.

Agnico-Eagle is expected to report first-quarter results after the market closes on Apr 28.

Goldcorp Inc. ( GG )

Headquartered in Vancouver, Canada, Goldcorp is a leading gold producer engaged in gold mining and related activities across Canada, the U.S., Mexico and Central and South America.

The company with a market capitalization of $14.14 billion has a long-term expected earnings growth rate of 10%. Goldcorp's share price appreciated 50.17% year to date and also outperformed the S&P 500 by 46.11%.

This Zacks Rank #3 stock has an Earnings ESP of +50.00%. The Zacks Consensus Estimate has moved up 67% over the last 30 days and is currently pegged at 5 cents. First quarter 2016 earnings are expected to log an impressive year-over-year growth of 357%.

Goldcorp's growth drivers lie in its vast array of development and exploration projects. Goldcorp is benefiting from facility expansion and has the highest leverage to spot gold prices due to its completely unhedged position. The company is actively focused on cost reduction, which should aid its results in the first quarter.

Goldcorp will report first-quarter results after the market closes on April 27.

What Next?

After years of languishing gold prices, declining output from existing mines, China worries and a delay in further rate hikes will work in favor of gold. At this juncture, these possible winners backed by a solid Zacks Rank and a positive Earnings ESP could be a great idea for investors to gain from this earnings season.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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