Sky-high inflation, the Fed’s aggressive rate hikes, regional banking failures, and the U.S. debt crisis issue have triggered fears of an economic catastrophe later in the year.
Gold is often touted as a ‘safe haven’ during uncertain times due to its stability and ability to preserve its value in the long run. Hence, gold stocks B2Gold Corp. (BTG) and DRDGOLD Limited (DRD), with fundamental strength, could be wise portfolio additions now.
Coupled with the Fed’s incessant rate hikes to curb the stubbornly high inflation, the financial system chaos and the U.S. debt default risk have triggered anticipations of an economic slump and the likelihood of unleashing massive turbulence in financial markets.
Given the overall scenario, investors are inclined towards investing in defensive stocks that could safeguard their portfolio amid enhanced economic uncertainties. Gold, for centuries, has been the preferred way of accumulating and securing wealth. It is also considered a relatively low-risk investment option.
The VanEck Gold Miners ETF (GDX) has gained 18.5% over the past six months and 13.2% over the past three months, substantiating investors’ interest in gold stocks.
In addition to the enhanced investors’ interest in the yellow metal, likely to raise prices further above the $2000 level, the U.S. debt crisis could threaten the dollar’s status and drive gold prices up. The Bank of America commodities team forecasts gold price per ounce to reach $2,200 in the fourth quarter.
Therefore, quality gold stocks BTG and DRD, with major upside potential, could be wise portfolio additions now.
B2Gold Corp. (BTG)
Headquartered in Vancouver, Canada, BTG is a gold producer with three mines in Mali, the Philippines, and Namibia. It operates the Fekola mine in Mali, the Masbate mine in the Philippines, and the Otjikoto mine in Namibia. The company has a 25% interest in Calibre Mining Corp.; and approximately 19% interest in BeMetals Corp.
On April 19, BTG announced its completion of the previously announced plan to acquire Sabina Gold & Silver Corp. BTG’s President and CEO Clive Johnson said, “The closing of the acquisition of Sabina and the Back River Gold District represents a milestone for B2Gold as we continue to build a low-cost responsible senior gold mining company.”
He added, “We are excited to add such a high-quality, high-grade gold project in a top mining jurisdiction to our global portfolio, and we are thrilled to welcome the exceptional Sabina team into B2Gold.”
On February 22, BTG declared a dividend for the first quarter of 2023 of $0.04 per common share, paid to the shareholders on March 17. Its annual dividend yield of $0.16 translates to a 2.77% yield on the current share price. Its four-year average dividend yield is 2.51%. The company’s dividend payout has grown at a CAGR of 109.1% over the past three years.
In terms of the trailing-12-month gross profit margin, BTG’s 58.78% is 107.8% higher than the 28.29% industry average. Likewise, its trailing-12-month EBIT margin of 31.34% is 172.3% higher than the industry average of 11.51%.
BTG’s gold revenue increased 29.5% year-over-year to $473.56 million for the first quarter that ended March 31, 2023. Its gross profit increased 53% over the prior-year quarter to $213.63 million.
The operating income increased 49% year-over-year to $175.92 million. Its net income for the period rose 12.2% over the prior-year quarter to $101.90 million. In addition, its earnings per share stood at $0.08.
Analysts expect BTG’s revenue and EPS for the fiscal second quarter ending June 2023 to increase 24.4% and 75% year-over-year to $475 million and $0.07, respectively.
Over the past six months, the stock has gained 14.8% to close the last trading session at $4.11. Moreover, the stock gained 13.5% over the past three months.
The stock is trading above its 50-day and 200-day moving averages of $3.91 and $3.55, respectively, indicating a bullish trend. The 12-month median price target of $6.07 indicates a 47.7% potential upside.
BTG’s POWR Ratings reflect this positive outlook. BTG has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #3 within the 39 stock B-rated Miners – Gold industry. It has a B grade for Growth, Value, Sentiment, and Quality.
Click here to see the other ratings of Momentum and Stability.
DRDGOLD Limited (DRD)
DRD, headquartered in Johannesburg, South Africa, is a subsidiary of Sibanye Gold Limited. Through its involvement in the exploration, extraction, processing, and smelting activities, the company recovers gold from the retreatment of surface tailings in the Witwatersrand basin in the Gauteng province of South Africa.
The company declared an interim cash dividend of 20 South African (SA) cents per ordinary share. The fiscal year 2023 will be the 16th consecutive year that DRD will have paid a dividend.
DRD’s annual dividend yield of $0.22 translates to a 1.70% yield on the current share price. Its four-year average dividend yield is 4.25%. The company’s dividend payouts have grown at CAGRs of 36% and 22% over the past three and five years, respectively.
DRD’s trailing-12-month levered FCF margin of 5.61% is 59.3% higher than the industry average of 3.52%. Likewise, its trailing-12-month net income and EBITDA margin of 22.05% and 28.23% are 203.9% and 56.9% higher than the industry averages of 7.25% and 17.99%, respectively.
For the fiscal quarter that ended March 31, 2023, DRD reported that its gold production increased by 4% from the previous quarter to 1,329kg.
For the six months that ended December 31, 2022, DRD’s revenue stood at R2.65 billion ($144.64 million), up 6.2% year-over-year. Its operating profit for the same period stood at R792.40 million ($43.18 million). Its headlines earnings per share stood at 62.3 SA cps (South African cents per share), up 7.4% year-over-year.
Moreover, its cash and cash equivalents, as of December 31, 2022, stood at R2.39 million ($130.36 million) compared to R2.24 million ($122.02 million) as of December 31, 2021.
DRD’s revenue during the fiscal year ending June 2023 is expected to increase 4.7% year-over-year to $296.72 million. Its EPS for the same period is expected to come in at $0.66.
The stock has gained 90.5% over the past year and 96.2% over the past six months to close the last trading session at $12.42.
The stock is trading above its 50-day and 200-day moving averages of $9.83 and $7.34, respectively, indicating a bullish trend. Its 12-month median price target of $15 indicates a 20.8% potential upside.
It’s no surprise that DRD has an overall rating of B, equating to Buy in our POWR Ratings system.
It has a B grade for Stability and Quality. DRD ranks #13 within the same industry.
Click here for additional POWR Ratings for DRD’s Growth, Value, Momentum, and Sentiment.
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BTG shares were trading at $4.09 per share on Friday morning, down $0.02 (-0.49%). Year-to-date, BTG has gained 15.89%, versus a 7.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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