Political and economic uncertainty, tensions in the Middle East, interest rate rises. The list is fairly extensive when it comes to finding reasons for stock markets to display a fair amount of volatility, which is why investors who are seeking a way to balance their portfolio and cover all bases, tend to look to gold as a decent hedge.
The start to 2016 provided ample evidence as to why gold stocks might be worth adding to your investment portfolio as a long term hold, so the question is, which gold stocks would make a good buy and hold?
Here is a look six gold stocks to consider, although it has to be pointed out that this isn’t a recommendation to invest or specific advice. The aim is simply to highlight some stocks which might make a good buy and hold proposition. You will have to make your own decisions on whether to invest or not.
Newmont Mining Corp – NEM
Some oil companies have been struggling to get a handle on their operating costs as prices have fallen and the mining sector has seen similar issues for a number of companies. This is an issue that has been successfully addressed by the Newmont MIning Corp, who recently announced that their all-in sustaining costs were expected to improve from $900-$950 an ounce to $850-$950 an ounce in 2017.
This is positive proof that the company has been successful in being able to reduce its operating costs and they expect that leaner fiscal management to progress over the next few years.
This aspect alone is a fair reason to consider Newmont Mining as a long term play, because the peaks and troughs of mining results with some mining sites performing worse than expected, means that with costs under control, they can benefit from increased production at other more productive sites.
Managing their production costs and output so well, will help the business to actually increase production levels overall and achieve sustainable production levels through to 2020 at least.
Analysts seem to agree with the positive outlook, as the ‘buy’ recommendations outweigh the ‘sell’ suggestions by a comfortable majority.
Goldcorp – GG
If you take a look at the recent stock performance of Goldcorp, you would quite rightly wonder why it would be on the radar of investors looking at gold stocks.
As with most investments, it often pays to take a long term view and despite the fact that Goldcorp have dropped about 30% in value YTD and also managed to lose $192 million in the third quarter of 2015 alone, those figures need to be viewed in context, as it hasn’t been bad news all round.
One particular nugget you can can glean from their latest earnings report, is that production rose by a healthy 40% in the third quarter, and this production boost was helped by new mines becoming operational, which would suggest that there is scope for those better production numbers to improve further over time.
Goldcorp now has a lower need for capital that in the past and this has meant that the business has in the space of just 12 months, turned a negative cash flow of $355 million 12 months ago, into positive cash flow of $243 million, just 52 weeks later.
Harmony Gold Mining Co – HMY
You can take two differing views with regard to the stock performance of Harmony Gold Mining.
The stock price is still dragging its heels and is 15% down from where it was about 12 months ago. However, the stock is actually up an impressive 161% since the end of 2015. The company recently reported positive earnings and is understood to be looking to grow through acquisitions and also benefit from debt repayments.
The stock was valued at $15 back in 2011, so the current average trading range of about $2.50, shows you what happened to gold stocks when everything seemed to be going so well in the stock markets.
Sentiment has definitely shifted in 2016 back towards gold stocks, with rises of 40% YTD being achieved across the sector, so as a long term hold, Harmony Gold may well have the scope to head some way back towards its 2011 stock value.
Sibanye Gold – SBGL
A gold stock that has already taken off at the start of 2016 is Sibanye Gold, which has already risen by a healthy 85% so far this year.
This stock is listed on the NYSE but the mining company operates in South Africa. It has estimated gold reserves of about 28 million ounces and uranium reserves estimated to be in the region of 102 million pounds.
Analysts tend to agree that the stock price should add further to its gains already achieved and it has a market capitalisation of $2.6 billion.
Barrick Gold Corp – ABX
Yet another gold stock to recover in 2016 is Barrick Gold Corp, which has risen by just over 60% so far in 2016.
The stock was changing hands recently at just over $11, but when you consider that the price was more in the region of $50 back in 2011, you can see that there is still scope to reach previously scaled heights again.
This is not beyond the realms of possibility, when you consider that Barrick Gold is one of the largest gold stocks in the world and has the financial resources to be able to embark on a significant acquisition spree if it chose to.
Gold Fields Ltd – GFI
A similar story in terms of the stock performance, is unfolding at Gold Fields.
The stock has managed to recover about half of its 2011 stock valuation, but it is still down about 25% compared to where it was about 12 months ago. The company’s all-in costs are current running at $942 per ounce and in its last quarterly update published in December 2015, it has achieved a $47 million cash inflow from operating activities.
The CEO Nick Holland has promised ongoing cost saving initiatives and it is believed that a strong international portfolio will allow the company to further improve how the balance sheet looks in 2016.
Taking a look at the price of gold now and comparing the price to the 2011 high of $1,980, you can soon see that gold stocks in general do offer plenty of potential upsides. There will be inevitable bumps in the road and sentiment can always change if economic conditions improve again, but at current prices, a rise in the price of gold as investors seek a safe haven, should translate to miners stocks as well.
The six gold stocks highlighted could represent a good buy and hold opportunity, but only you can decide if that is likely to be the case or not. This post does not constitute a recommendation to buy and at the time of publishing the author has no holdings in the above companies.