Recessionary concerns have been soaring amid rising interest rates, banking sector turmoil, and U.S. debt ceiling worries. The precious metal gold is often considered to provide a cushion against market uncertainty due to its ability to preserve its value in the long run.
Therefore, given the growth prospects of the industry and the current economic backdrop, quality gold stocks Gold Fields Limited (GFI), Alamos Gold Inc. (AGI), and DRDGOLD Limited (DRD) could be solid buys now. Let’s delve deeper to know more.
The Fed’s persistent rate hikes to curb the sticky inflation did have its intended effects. Last week, the central bank approved another 25-basis-points rate hike, with an indication of a rate hike pause. In addition, the banking sector turmoil, leading to a credit crunch in the economy, is feared to trigger a recession.
Moreover, there have been growing concerns over what steps the government would take for its debt crisis issues. Failure to raise the debt ceiling is anticipated to have a catastrophic economic impact and tip the economy into a recession.
The president of the Federal Reserve Bank of New York, John C. Williams, commented, “There are a million different ways that a default like that would affect the financial system and the economy in a negative way that are deeply profound and very hard to predict — therefore, it is absolutely essential that they deal with this promptly.”
Considering the overall situation, investors are shifting their focus to ‘safe-haven’ gold, which is anticipated to retain its value through bouts of market volatility. The iShares MSCI Global Gold Miners ETF (RING) has gained 36.8% over the past six months and 17.8% over the past three months, substantiating investors’ interest in gold stocks.
Such enhanced interest in gold increased its prices above the $2000 level this year. In addition, a Fed pivot on rate hikes might cause a gold price surge due to a potential further decline in the U.S. dollar.
Furthermore, allocations to gold and gold miners are expected to boost over the next 18 months, and the rally in gold prices will be sustained in the year ahead.
Therefore, quality gold stocks GFI, AGI, and DRD could be wise additions now to hedge against an upcoming recession.
Gold Fields Limited (GFI)
GFI is a gold producer based in Sandton, South Africa. The company also explores for copper and has reserves and resources in Chile, South Africa, Ghana, West Africa, Australia, and Peru.
On May 2, GFI announced its partnership with Osisko Mining Inc. to develop and mine the world-class underground Windfall Project in Québec, Canada, now known as the Windfall Mining Group. Through a 100% held Canadian subsidiary, GFI had acquired a 50% interest in the feasibility stage Windfall Project (including exploration potential).
Such partnerships should strengthen GFI’s future production profile and enhance its position on the cost curve.
GFI’s annual dividend translates to a 2.85% yield on the current share price. Its four-year average dividend yield is 2.28%. The company’s dividend payouts have grown at CAGRs of 59.6% and 41.1% over the past three and five years, respectively.
GFI’s trailing-12-month levered FCF margin of 10.34% is 192.6% higher than the industry average of 3.54%. Likewise, its trailing 12-month ROE, ROTC, and ROTA of 17.37%, 15.32%, and 9.69% are 56.7%, 146.3%, and 100% higher than the industry averages of 11.08%, 6.22%, and 4.84%, respectively.
For the quarter that ended March 2023, GFI’s gold produced came in at 577 thousand ounces. During the same quarter, the company’s revenue increased marginally year-over-year to $1,901/ounce, while its net debt decreased 11.1% from the previous-year quarter to $875 million.
GFI’s revenue for the fiscal year ending December 2023 is expected to increase 4.6% year-over-year to $4.49 billion. Its EPS for the same period is expected to come at $0.88.
The stock has gained 55.8% over the past three months and 52.5% over the past six months to close its last trading session at $16.65.
GFI’s POWR Ratings reflect its robust fundamentals. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
GFI also has an A grade for Quality. It is ranked #10 of 39 stocks in the B-rated Miners – Gold industry.
Click here to access additional ratings for Growth, Value, Stability, Sentiment, and Momentum for GFI.
Alamos Gold Inc. (AGI)
AGI is a Canadian intermediate gold producer with diversified production from operating mines in North America, Canada, and Mexico. The company also mines silver and precious metals. AGI’s flagship project is the Young-Davidson mine, which includes contiguous mineral leases.
AGI’s annual dividend yield of $0.10 translates to a 0.72% yield on the current share price. Its four-year average dividend yield is 0.88%. The company’s dividend payouts have grown at CAGRs of 30.5% and 38% over the past three and five years, respectively.
AGI’s trailing-12-month levered FCF margin of 7.34% is 107.8% higher than the industry average of 3.54%. Likewise, its trailing 12-month gross profit and EBITDA margin of 46.66% and 41.90% are 78.3% and 132.4% higher than the industry averages of 27.86% and 18.03%, respectively.
For the fiscal first quarter that ended March 31, 2023, AGI’s production increased to 128,400 ounces of gold, indicating a 29.8% increase from the prior-year quarter, driven by a significant increase in production from the Mulatos District. Its Mulatos District gold production increased 124.4% year-over-year to 50,500 ounces.
In addition, for the same quarter, AGI’s operating revenues stood at $251.50 million, up 36.4% year-over-year. Its adjusted net earnings for the quarter grew 152.2% from the year-ago quarter to $45.40 million, while adjusted earnings per share grew 140% year-over-year to $0.12.
The consensus revenue estimate for the fiscal second quarter ending June 2023 is $250.46 million, indicating a 31% year-over-year increase. EPS for the same quarter is expected to grow 77.6% year-over-year to $0.12. Moreover, AGI topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
AGI’s shares have gained 89.5% over the past year and 65.7% over the past six months to close its last trading session at $13.74.
AGI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, which equates to Buy in our proprietary rating system.
AGI has an A grade for Growth and a B for Quality. In the same industry, it is ranked #12.
To see additional grades for Value, Stability, Sentiment, and Momentum for AGI, click here.
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 1.65% 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 58.7% higher than the industry average of 3.54%. Likewise, its trailing-12-month net income and EBITDA margin of 22.05% and 28.23% are 203.9% and 56.6% higher than the industry averages of 7.25% and 18.03%, 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 ($144.59 million), up 6.2% year-over-year. Its operating profit for the same period stood at R792.40 million ($43.17 million). Its headlines earnings per share stood at 62.3 SA cps (South African cents per share), up 7.4% year-over-year.
Moreover, as of December 31, 2022, its cash and cash equivalents stood at R2.39 million ($130.32 million) compared to R2.24 million ($121.98 million) as of December 31, 2021.
DRD’s revenue during the fiscal year ending June 2023 is expected to increase 7.7% year-over-year to $305.22 million. Its EPS for the same period is expected to come in at $0.68.
The stock has gained 100.2% over the past year and 124.3% over the past six months to close the last trading session at $13.41.
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 #11 within the same industry.
Click here for additional POWR Ratings for DRD’s Growth, Value, Momentum, and Sentiment.
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GFI shares were trading at $16.27 per share on Wednesday morning, down $0.38 (-2.28%). Year-to-date, GFI has gained 60.00%, versus a 8.09% 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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