If you are looking to get in on the gold bull market, you can either buy gold bars or gold mining stocks. Warren Buffett prefers gold stocks because "bullion produces no income," as opposed to investing in gold mining stocks that may provide corporate profits.
Gold recently soared to a new all-time high of $2,063 per ounce. According to investment firm Berenberg, the increase was driven by investors looking for safe haven investments following the extraordinary fiscal and monetary actions taken to address the financial impacts of the COVID-19 pandemic. Berenberg is of the opinion that as long as US real interest rates remain negative, precious metal prices should be sustained. Accordingly, gold mining stocks will maintain their upward momentum.
Bearing this in mind, we used TipRanks’ database to identify three gold mining stocks that have received Buy ratings from the analyst community. The cherry on top? These stocks have the potential to deliver double-digit upside gains from their current levels.
Eldorado Gold Corporation (EGO)
We start off with Eldorado Gold Corporation, a mid-tier gold and base metals mining company that has been in business for 25 years. The company has five producing gold mines that generated 395,000 ounces in 2019. Eldorado has operations in Europe, North America and South America.
The company posted strong second-quarter operating results driven by rising sales and higher gold prices. Gold production climbed 50%, totaling 137,782 ounces, compared to the same period from the year before. Moreover, adjusted earnings skyrocketed to $0.26 per share, from a loss of $0.02 per share the year before. The figure was in line with the consensus estimate.
CIBC analyst Cosmos Chiu was impressed with what he saw, noting, “Eldorado Gold is one of the few companies that has been able to maintain its original guidance throughout 2020, and it has once again re-affirmed its target of 520k-550koz at AISC (all-in sustaining costs) of $850-$900 per ounce. Eldorado is well on track with first half 2020 production of 254koz.” The analyst added, “Eldorado Gold continues to be one of our preferred names to gain exposure and leverage to higher gold prices.”
Based on the above, Chiu has a Buy rating on EGO along with a $14 price target. This figure suggests a potential increase of 28%. (To watch Chiu’s track record, click here)
As for the rest of the Street, EGO has been assigned 5 Buys, 1 Hold and 2 Sells. This translates to a Moderate Buy consensus rating. The average price target lands just above Chiu’s at $14.01, and represents upside potential of 28%. (See Eldorado stock analysis on TipRanks)
Kinross Gold Corp (KGC)
Next on our gold miners list is Kinross Gold, a Canadian-based senior gold mining company with a diverse portfolio of mines and projects worldwide. The company has proven reserves of about 24.3 million ounces of gold and 55.7 million ounces of silver.
The company benefited from higher gold prices in the second quarter, with the average realized gold price jumping 31% to $1,712 per ounce, compared to $1,307 per ounce the year before. As a result, revenue in the quarter rose 20% to $1 billion, versus $838 million during the same period in 2019. Additionally, free cash flow soared to $63.4 million from $4.8 million, while adjusted earnings more than doubled to reach $194 million.
Scotiabank analyst Tanya Jakusconek weighed in on the earnings, commenting, “The assets are performing well, and Kinross highlighted on its second quarter conference call that at current spot prices of $1,800 it expects to generate free cash flow in excess of $900 million in 2020 (in line with our forecasts).”
Given the company’s strong free cash flow, management believes the balance sheet is strong enough to reinstate the dividend. Jakusconek agrees: “This puts Kinross in a position to reinstate a dividend policy as early as Q3/20 (last dividend paid in 2013) as soon as Kinross has more visibility on the full impact of COVID-19 on its operations, which could be as early as this fall. With significant free cash flow growing and potential dividend to come, combined with its low valuation (trading at a 9% discount to bullion), we believe Kinross shares offer a compelling risk/reward.”
To this end, the Scotiabank analyst rates KGC a Buy along with a $9.50 price target. (To watch Jakusconek’s track record, click here)
Turning to the rest of the Street, Kinross has a Moderate Buy consensus rating, with 5 Buys and 3 Holds issued in the last three months. Some of the other analysts are more optimistic than Jakusconek, with the average price target lands at $10.50. This figure implies upside potential of 22% (See Kinross stock analysis on TipRanks)
Alamos Gold Inc. (AGI)
Last but not least is Alamos Gold, which has market capitalization of just over $4 billion. The company currently operates two gold mines in Canada and one in Mexico. In addition, Alamos has development projects in Canada, Mexico, Turkey and the US.
Alamos’ second quarter operating results were negatively affected by COVID-19, which caused the company to halt operations at some of its gold mines. Revenue fell 25% to $126.2 million, from $168 million the year before. In addition, adjusted earnings plunged 45% to $9.8 million, compared to $17.7 million in the prior year.
Despite the poor earnings, the results were basically in line with the consensus estimate. Writing for Canaccord, analyst Dalton Baretto provided his take on the earnings: “AGI reported financial results that were largely in line with our estimates, although production was above our forecast as the impact of disruptions at all three operating mines was less than we had anticipated.”
At the same time, Alamos improved its standing by expanding some of its current mines and announcing new projects. “AGI’s balance sheet remains very strong, and despite the sanctioning of new projects at Island Gold and Mulatos we forecast the company to remain free cash flow positive,” Baretto noted.
Therefore, the 5-star analyst rates the company a Buy and attaches a US$14.04 (C$18.50) price target, which suggests a potential gain of 40% from current levels. (To watch Baretto’s track record, click here)
What does the rest of the Street think? Looking at the consensus breakdown, 7 Buys, 2 Holds and 1 Sell add up to a Moderate Buy consensus rating. In addition, the US$13.00 (C$17.21) average price target indicates a 30% potential increase. (See Alamos stock analysis on TipRanks)
To find good ideas for gold stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.