The Federal Reserve's recent policy statement reveals that inflation remains "elevated." The Personal Consumption Expenditures price index rose at a 2.8% annual rate in April, well above the Fed’s 2% target. This persistent level of inflation has investors searching for reliable hedges, and gold mining stocks are emerging as a prime choice.
Therefore, investors could consider buying quality gold mining stocks such as Barrick Gold Corporation (GOLD), Harmony Gold Mining Company Limited (HMY), and Kinross Gold Corporation (KGC) to hedge against inflation.
Gold has always been the go-to asset in times of financial uncertainty, and 2024 is shaping up to be no exception. The World Gold Council's latest report paints an optimistic picture, predicting stronger returns for gold than previously expected.
Their Gold Demand Trends report for the first quarter reveals a 3% year-over-year increase in total global gold demand to 1,238 tonnes, the highest first-quarter demand since 2016. Additionally, mine production hit a record 893 tonnes, up 4% from last year.
Moreover, the outlook for gold prices remains bullish amidst global economic uncertainty. Bank of America Corporation (BAC) analysts project that gold could soar to $3,000 per ounce within the next 12-18 months, driven by increased non-commercial demand and potential Federal Reserve rate cuts. Such a scenario would likely lead to significant inflows into physically backed gold ETFs and boost trading volumes.
And let's not overlook central banks, which are ramping up their gold purchases to reduce USD holdings in foreign exchange portfolios. This strategic shift underscores yellow metal's status as a long-term store of value, a hedge against inflation, and an indispensable portfolio diversifier.
Furthermore, investors’ interest in gold stocks is evident from the iShares Gold Trust Micro ETF’s (IAUM) 22.2% gains over the past nine months.
To that end, let’s examine the fundamentals of the three stocks to buy in the Miners – Gold industry, beginning with the third choice.
Stock #3: Barrick Gold Corporation (GOLD)
Based in Toronto, Canada, GOLD is engaged in the exploration, mine development, production, and sale of gold and copper properties. The company holds ownership interests in producing gold mines across various countries, including Argentina, Canada, Côte d'Ivoire, the Democratic Republic of Congo, the Dominican Republic, Mali, Tanzania, and the United States.
On May 1, 2024, Barrick Gold (International Holdings) Ltd., a subsidiary of GOLD, entered into an exploration earn-in agreement with Geophysx Jamaica Ltd. This agreement provides GOLD with access to approximately 4,000 square kilometers of consolidated land positions in Jamaica.
The strategic partnership is expected to enhance GOLD's exploration capabilities and potentially lead to significant new discoveries, aligning well with the company’s ongoing operations and growth strategy.
On April 25, GOLD’s Nevada Gold Mines celebrated the official opening of its new underground mine, Goldrush. The Goldrush Project is projected to produce 130,000 ounces of gold in its initial year, contributing to Nevada Gold Mines' (NGM) overall value and production capacity. GOLD holds a 61.5% ownership stake in this project through a joint venture with Newmont.
GOLD’s trailing-12-month gross profit margin and ROCE of 31.15% and 6.27% are 10.3% and 3.7% higher than the industry averages of 28.24% and 6.04%, respectively. Likewise, its trailing-12-month 12.58% net income margin compares to the industry average of 4.68%.
In the fiscal first quarter that ended March 31, 2024, GOLD’s revenues increased 3.9% year-over-year to $2.75 billion. Its adjusted EBITDA grew 7% from the year-ago value to $1.27 billion with an attributable margin of 41%. GOLD’s adjusted net earnings amounted to $333 million or $0.19 per share, reflecting an increase of 34.8% and 35.7%, respectively, in the same period.
Also, during the quarter, it produced 940 thousand gold ounces, slightly below the 952 thousand produced in the prior year.
The consensus EPS estimate of $0.25 for the fiscal second quarter (ending June 2024) represents a 30.5% improvement year-over-year. The consensus revenue estimate of $3.25 billion for the ongoing quarter indicates a 14.7% increase from the same period last year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 11.4%, closing the last trading session at $16.80.
GOLD’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates 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.
It also has a B grade for Quality. Among the 41 stocks in the Miners – Gold industry, it is ranked #8. Click here to see the additional ratings for GOLD (Growth, Value, Momentum, Stability, and Sentiment).
Stock #2: Harmony Gold Mining Company Limited (HMY)
Headquartered in Randfontein, South Africa, HMY engages in the exploration, extraction, and processing of gold. It explores uranium, silver, copper, and molybdenum deposits. The company has eight underground operations in the Witwatersrand Basin, an open-pit mine on the Kraaipan Greenstone Belt, and various surface source operations in South Africa.
On April 30, HMY reported a 10% increase in total gold production for the nine months ended March 31, 2024, reaching 36,777 kilograms (1,182,405 ounces) compared to 33,349 kilograms (1,072,195 ounces) in the previous period. The rand gold price rose 17% year-over-year to R1,162,048 per kg ($1,928 per ounce), strengthening HMY's robust balance sheet due to strong free cash flow generation.
In March, the company announced the Queensland Government’s declaration of the Eva Copper Mine Project as a ‘Prescribed Project’ in recognition of its social and economic significance to the state’s Northwest region. This will harness the coordination of approval processes required for the project and significantly benefit HMY.
HMY’s trailing-12-month gross profit and EBITDA margins of 34.14% and 27.95% are 20.9% and 70.4% higher than the respective industry averages of 28.24% and 16.41%. Further, the stock’s trailing-12-month net income margin of 15.50% is favorably compared to the 4.68% industry average.
During the six months that ended December 31, 2023, HMY’s revenue increased 35.1% year-over-year to R31.41 billion ($1.72 billion). The company’s gross profit grew 186.2% from the prior year’s period to R8.62 billion ($473.32 million). Its operating profit of R7.57 billion ($415.52 million) indicates growth of 184.4% year-over-year.
In addition, the company’s net profit for the period and EPS came in at R5.96 billion ($327.19 million) and R9.53, up 220.2% and 220.9% from the previous year’s period. Its EBITDA increased 114% year-over-year to R17.43 billion ($956.85 million).
Analysts expect HMY’s revenue for the fiscal year (ending June 2024) to increase 29.7% year-over-year to $3.42 billion, while its EPS is expected to grow 115.9% year-over-year to $0.95.
Shares of HMY have surged 125.2% over the past nine months and 119.8% over the past year to close the last trading session at $9.01.
HMY’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
HMY has an A grade for Growth and a B for Value. It is ranked #7 out of 41 stocks within the same industry. To see the other HMY ratings for Momentum, Stability, Sentiment, and Quality, click here.
Stock #1: Kinross Gold Corporation (KGC)
Based in Toronto, Canada, KGC acquires, explores, and develops gold properties principally in the U.S., Brazil, Chile, Canada, and Mauritania.
On June 13, the company paid its shareholders a quarterly dividend of $0.03 per common share. Its annualized dividend is $0.12 per share, translating to a dividend yield of 1.52% on the current share price. Also, its four-year average yield is 2.02%.
KGC’s trailing-12-month gross profit margin of 51.68% is 83% higher than the industry average of 28.24%. Similarly, its trailing-12-month levered FCF margin and ROTA of 9.26% and 4.10% are 78.7% and 51.6% higher than the industry averages of 5.18% and 2.71%, respectively.
KGC’s metal sales for the fiscal first quarter that ended March 31, 2024, increased 16.4% year-over-year to $1.08 billion. Its adjusted operating cash flow stood at $424.90 million, up 18.6% year-over-year. The company’s adjusted net earnings attributable to common shareholders amounted to $124.90 million and $0.10 per share, reflecting an increase of 42.6% and 42.8% from the prior-year quarter, respectively.
Additionally, it produced 527,399 gold equivalent ounces (Au eq. oz.) in the quarter, marking a 13% year-over-year increase.
Street expects KGC’s revenue for the third quarter (ending September 2024) to increase 10.2% year-over-year to $1.22 billion. Its EPS for the same quarter is anticipated to grow 14.3% year-over-year to $0.14. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 76% over the past year to close the last trading session at $7.87.
KGC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
KGC also has a B grade for Value, Sentiment, and Quality. Within the Miners – Gold industry, it is ranked #4. To see KGC’s Growth, Momentum, and Stability ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
GOLD shares were trading at $16.88 per share on Thursday afternoon, up $0.08 (+0.48%). Year-to-date, GOLD has declined -4.26%, versus a 15.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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