October has been a choppy month so far, forcing long-term investors to seek potentially safer assets, such as gold and silver stocks. Over the past month, the Dow Jones Industrial Average (DJIA) is up 0.4%, while the S&P 500 index and Nasdaq 100 are down 1.5% and 3.4% respectively. As a result, tailwinds for gold and silver stocks have become strong.
After all, as most InvestorPlace.com readers probably know, gold typically has a low correlation with equities.
After an extended stock market rally, a correction seems to be on the horizon. Retail sales are down, China’s economy is slowing down, and many consumer goods remain in short supply due to the pandemic-induced disruptions in the global supply chain. As inflation goes up, markets are also getting ready for interest rate hikes.
While investors cannot foresee the specific date of a market decline, they can still prepare for one. In this context, gold and silver stocks could be valuable hedges.
The gold price is typically quoted by the ounce in U.S. dollars. In August 2020, it saw record highs and went above $2,050 per troy ounce. Now, it is hovering around $1,750.
By comparison, in August 2020, the price of silver hit multi-year highs and went over $30 per ounce. As I write, it is slightly above $22.50.
With the volatile market, the ongoing pandemic and rising inflation, October might be the right time to look at an asset class that’s home to many deeply discounted value stocks. However, adding gold and silver stocks to a portfolio should be viewed more as a diversification tool than a way to time the highs and lows of the overall stock market. Thus, a modest-size investment and long-term commitment to one or several of these stocks may be the best course of action.
With that information, here is a list of seven gold and silver stocks that should gain traction in the coming months:
- Barrick Gold (NYSE:GOLD)
- Hecla Mining (NYSE:HL)
- Kinross Gold (NYSE:KGC)
- Pan American Silver (NASDAQ:PAAS)
- Sibanye Stillwater (NYSE:SBSW)
- SSR Mining (NASDAQ:SSRM)
- VanEck Gold Miners ETF (NYSEARCA:GDX)
Gold and Silver Stocks: Barrick Gold (GOLD)
52 week range: $17.56 – $29.60
Based in Toronto, Barrick Gold is one of the largest gold producers worldwide, operating mines in North America, South America, Africa, and the Middle East. In 2020, the firm delivered 4.8 million ounces of gold while generating $12.6 billion in total revenue.
Barrick Gold issued Q2 results in early August. Revenue declined 5% year-over-year (YOY) to $2.9 billion. Adjusted net earnings came in at $513 million, or 29 cents per diluted share, compared to adjusted net earnings of $415 million, or 23 cents per diluted share, in the prior-year quarter. Cash and equivalents ended the quarter at $5.1 billion.
On the results, CEO Mark Bristow remarked, “We’re constantly pumping new prospects into a development and project pipeline which already contains Goldrush, Fourmile and Robertson in Nevada, Donlin in Alaska, as well as new Loulo-Gounkoto and Kibali targets in Africa.”
The miner generated record free cash flow of $3.4 billion in 2020. Now, with over $5 billion in cash and equivalents, the company has abundant financial resources to operate through fluctuations in gold prices. Management is forecasting stable gold deliveries that should average 4.5 million ounces per year.
Barrick stock has been more volatile than many of its peers. GOLD stock hovers at $18, down almost 20% YTD. The dip in price offers an attractive opportunity for long-term investors. Shares trade at 14.7x forward earnings and 2.6x trailing sales.
Hecla Mining (HL)
Source: Phawat / Shutterstock.com
52 week range: $4.32 – $9.44
Hecla Mining is a leading player among the silver stocks, producing approximately one-third of all silver mined in the U.S. Its primary silver mines include Idaho-based Lucky Friday and Greens Creek in Alaska.
The miner issued Q2 results in early August. Revenue surged 31% YOY to $218 million. Net income came in at $785,000, compared to a net loss of $14 million in the previous year. It generated $54 million in free cash flow. The company boasts a strong balance sheet with $181 million in cash.
Hecla Mining is a pure-play silver mining stock for long-term investors looking for exposure to a precious metals bull market. The Greens Creek mine in Alaska is one of the largest and lowest-cost silver mines worldwide, generating significant cash flow.
Moreover, production at the Lucky Friday mine is forecast to more than double between 2020 and 2023. Lucky Friday’s return to full production capacity would boost top-line and bottom-line performance, especially if the price of silver increases substantially.
HL stock hovers around $5.50, and is now down 15% YTD. Shares trade at 30x forward earnings and 3.5x sales. Interested readers could consider investing around $5.20.
Gold and Silver Stocks: Kinross Gold (KGC)
Source: T. Schneider / Shutterstock.com
52 week range: $5.18 – $9.42
Toronto-based Kinross Gold is a prominent Canadian gold miner that boasts an expansive portfolio with mines in the U.S., Brazil, Chile, Ghana, Mauritania, and Russia. Management issued Q2 results in late July.
Revenue of $1 billion was around the same level as in the prior-year period. Adjusted net earnings came in at $156.5 million, or 12 cents per diluted share, compared to $194 million, or 15 cents per diluted share, in the prior year quarter. Free cash flow stood at $183 million. Cash and equivalents ended the quarter at $676 million.
After the announcement, CEO J. Paul Rollinson cited, “Our excellent free cash flow, as well as the strength of our investment grade balance sheet and growing production profile, underpin today’s announcement of a share buyback program and our continuing quarterly dividend, which supports our commitment to enhance shareholder value.”
Given its depressed price, improving production profile and access to increasing amounts of high-quality ore, KGC is an attractive stock for long-term value investors. Kinross is expected to increase production levels in the coming years.
After peaking in late 2020 at $10.31, KGC stock has lost almost half its value. It currently hovers around $5.60, down 23% this year. KGC shares trade at seven times forward earnings and 1.6x times sales.
Pan American Silver (PAAS)
52 week range: $22.27 – $39.62
Leading silver producer Pan American Silver operates mines and exploration projects, primarily in Mexico, Peru, Bolivia, and Argentina. Management announced Q2 results in early August.
Revenue soared 53% YOY to $382 million. Adjusted net income came in at $47 million, or 22 cents per share, compared to an adjusted 11 million, or 5 cents per share, in the prior-year quarter. As of June 30, Pan American had cash and short-term investments of $240 million.
On these metrics, CEO Michael Steinmann remarked, “Strong mine operating earnings of $103 million and strong operating cash flow in Q2 have further improved our financial position. Together with the sale of non-core assets, our cash and short-term investments increased by $34 million in Q2.”
In recent years, Pan American Silver has invested heavily into the business. As a result, earnings have grown considerably. Analysts are now forecasting 30% revenue growth and 4.3% EPS growth for the full year.
PAAS stock rebounded strongly after its March 2020 low, yet it currently trades 40% lower than its 2020 peak value. The shares hover near $24, down 31% YTD. Forward price-to-earnings (P/E) and current price-to-sales (P/S) ratios stand at 11.88x and 3.27x, respectively.
Gold and Silver Stocks: Sibanye Stillwater (SBSW)
Source: allstars / Shutterstock.com
52 week range: $10.49 – $20.68
South Africa-based miner Sibanye Stillwater owns five underground and surface gold operations in South Africa: the Cooke, DRDGOLD, Driefontein, and Kloof operations in the West Witwatersrand region, and the Beatrix Operation in the southern Free State province.
Sibanye Stillwater announced financial results for the first half of 2021 in late July. Revenue surged 87% YOY to $6.2 billion for the six-month period. Profits benefited from strong operating performance and robust commodity prices, increasing 198% YOY to $1.74 billion and surpassing the previous H2 2020 record of $1.28 billion by 36%.
Diluted earnings per share came in at 57 cents, up from 19 cents in the prior-year quarter. Adjusted free cash flow was $1.2 billion. Cash and equivalents ended the period at $1.83 billion.
CEO Neal Froneman cited, “The record financial results for H1 2021 are extremely pleasing and once again reflect the benefit of our geographic and commodity diversification.”
The miner is an attractive play on gold and platinum group metals. It is the largest primary producer of platinum and the second-largest producer of palladium worldwide. Palladium is a crucial metal for electronics as well as hybrid vehicles. Platinum group metals are broadly used in exhaust control catalytic converters of cars.
SBSW stock hovers at $14.30 territory, and is down 10% so far this year. Yet the shares have gained almost 13% over the past year, and trade at 1.28x forward earnings and 0.8x sales.
SSR Mining (SSRM)
52 week range: $13.68 – $21.80
Vancouver, Canada-based SSR Mining, formerly Silver Standard Resources, is a prominent gold-silver producer and exploration company that operates throughout North and South America. Over half of its revenue is derived from the production of gold, with a significant portion coming from silver.
SSR Mining announced Q2 2021 in early August. Revenue increased 307% YOY to $377 million. Adjusted net income came in at $101 million, or 46 cents per diluted share, compared to $12.6 million, or 10 cents per diluted share, in the previous year. The company generated a free cash flow of $100.4 million in the second quarter. Cash and equivalents remained strong at $870 million.
SSR Mining completed a merger last year with Turkey’s Alacer Gold. The merger has allowed the company to double output. Analysts expect 70% revenue growth and a 37% EPS growth in full-year 2021. Management anticipates $450 million in free cash flow for 2021 and 2022.
SSRM stock hovers near $15, and is down 25% YTD. SSR’s strong cash position enables the company to pay a quarterly dividend with a 1.4% yield and initiate a $150 million share buyback program this year.
Shares trade at 8.5x forward earnings and 2.4x current sales. In other words it has a cheap valuation that makes it an attractive stock for most long-term value investors.
Gold and Silver Stocks: VanEck Gold Miners ETF (GDX)
52-Week Range: $28.83 – $41.81
Expense Ratio: 0.51%, or $51 per $10,000 invested annually
Our final choice for today is an exchange-traded fund (ETF). The VanEck Gold Miners ETF is one of the leading funds in the global gold mining segment.
GDX, which started trading in May 2006, currently has 55 holdings. The leading 10 stocks account for 62% of net assets of $12.8 billion. Canadian companies dominate the ETF with almost 45% of net assets, followed by U.S. companies with 19.3% and Australia with 12.7%.
The leading stocks in the roster include the world’s largest gold producer Newmont (NYSE:NEM), Barrick Gold, Franco-Nevada (NYSE:FNV), precious metal streaming company Wheaton Precious Metals (NYSE:WPM), and Newcrest Mining (OTCMKTS:NCMGY).
GDX has significantly underperformed the broader market over the past year, declining 17% YTD and almost 22% over the past 12 months. Interested readers could find value around these levels.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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