Amid ongoing economic uncertainty due to higher interest rates, still-elevated inflation, and growing recession concerns, investors are turning to gold to protect their portfolios and secure steady returns. The increased gold demand is reflected in its higher prices this year. While gold prices have fluctuated in the last few weeks, they have held near the $2,000 level.
Given this backdrop, it could be wise to invest in fundamentally sound gold stocks Eldorado Gold Corporation (EGO), Centamin plc (CELTF), and New Gold Inc. (NGD), which could offer enhanced stability and potential gains.
Before digging deeper into the fundamentals of these stocks, let’s discuss why it is the opportune time to invest in gold stocks.
The Federal Reserve has raised interest rates ten consecutive times since March 2022 to control multi-decade high inflation, bringing them to a range of 5-5.25%, the highest level since 2007. The Bureau of Labor Statistics reported that consumer prices cooled again in May to the lowest level since March 2021.
The consumer price index (CPI) grew 0.1% for the month, bringing the annual rate down to 4% from 4.9% in April. But the picture for core inflation, excluding food and energy prices, wasn’t as optimistic as it increased 0.4% for the month and was still up 5.3% year-over-year, indicating that underlying price pressures remained strong.
The Fed still hopes to cool the inflation rate to its goal of 2%. “The moderate slowing provides the Fed room to pause its rate hikes this week,” said Kathy Bostjancic, chief economist at Nationwide in New York. “However, if economic data continues to surprise to the upside and inflation remains sticky, the door is open for another rate hike in the coming months, as soon as July.”
In recent months, gold prices have rallied amid interest rate hikes, high inflation, recent bank failures, and worries about a potential recession. Gold is historically considered a safe-haven asset during times of economic uncertainty. When the economy is in turmoil, investors lose faith in traditional assets like stocks and bonds and turn to gold, causing strong demand and increased prices.
The price of gold reached near-record highs in the past months. In April, its price moved as high as $2,048.40, nearing the all-time record of $2,067 set in August 2020 during the COVID-19 pandemic. While gold prices have since cooled slightly, they still hover around the $2,000 mark.
“I expect gold prices to move higher in the near term,” said Noah Damsky, CFA and principal of Marina Wealth Advisors. “Gold prices can move higher in times of turmoil. Given where we are in the market cycle, I would expect gold to benefit from a bumpy road ahead as a result of debt ceiling discussions, an inverted yield curve and inflationary pressures.”
Investors’ interest in gold stocks is evident from the SPDR Gold Trust ETF’s (GLD) 7.1% gains over the past six months.
Given an uncertain macro backdrop, investors could consider buying quality gold stocks EGO, CELTF, and NGD to protect their portfolios and secure attractive returns.
Let’s take a closer look at the fundamentals of these stocks.
Eldorado Gold Corporation (EGO)
EGO engages in the mining, exploration, development, and sale of mineral products, mainly in Turkey, Canada, Greece, and Romania. The company primarily produces gold, silver, lead, and zinc. It is headquartered in Vancouver, Canada.
On May 30, EGO announced a C$81.50 million ($81.50 million) strategic investment in Eldorado by the European Bank for Reconstruction and Development (EBRD) and concurrent C$135 million ($101.23 million) bought debt financing.
“Proceeds from this financing will strengthen the Company’s balance sheet and is expected to provide additional optionality across our global portfolio. With a number of exciting development opportunities that are not currently included within our five-year plan, this additional funding provides us financial flexibility to advance these projects, including the Perama Hill project in Northern Greece,” said George Burns, EGO’s President, and CEO.
EGO’s trailing-12-month gross profit margin of 45.83% is 61.4% higher than the 28.39% industry average. Likewise, the stock’s 37.40% trailing-12-month net income margin is 114.7% higher than the industry average of 17.42%.
For the first quarter that ended March 31, 2023, EGO’s revenue grew 17.8% year-over-year to $229.40 million. Its net earnings for the period were $21.30 million or $.12 per share, compared to a loss of $317.60 million or $1.74 per share in the same period of 2022. Also, the company’s adjusted EBITDA rose 66.1% year-over-year to $102.50 million.
Furthermore, cash inflow from operating activities before changes in working capital was $94.50 million, up 91.3% year-over-year, primarily due to higher gold production and sales volumes. During the quarter, gold production increased 21% year-over-year to 112,533 ounces. The company’s gold sales grew 16% from the year-ago value to 109,817 ounces.
The consensus revenue estimate of $1.05 billion for the fiscal year (ending December 2023) reflects a 20.7% year-over-year improvement. Likewise, the consensus EPS estimate of $0.45 for the ongoing year indicates an 807.3% rise year-over-year. Shares of EGO have gained 19.1% over the past six months and 29.7% over the past year to close the last trading session at $9.92.
EGO’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EGO has a grade B for Quality and Growth. In the 38-stock Miners - Gold industry, it is ranked #8.
Beyond what we stated above, we also have EGO’s ratings for Stability, Sentiment, Value, and Momentum. Get all EGO ratings here.
Centamin plc (CELTF)
Headquartered in Saint Helier, Jersey, CELTF engages in the exploration, mining, and development of precious metals in Egypt, Burkina Faso, Côte d’Ivoire, Jersey, the United Kingdom, and Australia. It explores gold deposits, and its principal asset is the Sukari Gold Mine project, which covers an area of approximately 160 square kilometers located in the Eastern Desert of Egypt.
In terms of the trailing-12-month gross profit margin, CELTF’s 30.92% is 8.9% higher than the 28.39% industry average. And the stock’s 39.46% trailing-12-month EBITDA margin is 126.5% higher than the industry average of 17.42%. Also, its 9.19% trailing-12-month net income margin is 29.1% higher than the industry average of 7.12%.
During the first quarter that ended March 31, 2023, CELTF’s revenue increased 18% year-over-year to $205.20 million. The company’s realized gold price grew marginally year-over-year to $1,902/oz, and its gold sold increased 16% year-over-year to 107,661 oz. Its free cash flow rose 138% year-over-year to $8.10 million.
Analysts expect CELTF’s revenue to increase 11% year-over-year to $874.78 million for the fiscal year ending December 2023. The stock has gained 13% over the past year to close the last trading session at $1.14.
CELTF’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
CELTF has a B grade for Value and Stability. It is ranked #8 in the same industry.
To see the other ratings of CELTF for Growth, Momentum, Quality, and Sentiment, click here.
New Gold Inc. (NGD)
Based in Toronto, Canada, NGD is an intermediate gold mining company. It engages in the exploration, development, and operation of mineral properties. The company mainly explores for gold, silver, and copper deposits. Its principal operating properties include 100% interests in the Rainy River mine located in Ontario, Canada, and the New Afton mine situated in British Columbia, Canada.
NGD’s trailing-12-month gross profit margin of 35.89% is 26.4% higher than the 28.39% industry average. In addition, the stock’s 28.92% trailing-12-month EBITDA margin is 166% higher than the industry average of 17.42%. Its trailing-12-month CAPEX/Sales of 44% compares to the 6.23% industry average.
For the first quarter that ended March 31, 2023, NGD’s revenue increased 15.4% year-over-year to $201.60 million. The increase in revenue is driven by higher gold and copper sales volume. Gold sold for the quarter was 87,206 ounces, up 23.6% year-over-year, and copper sold was 9.5 Mlbs, an increase of 3.3% year-over-year.
In addition, the company’s adjusted net earnings were $18.40 million and $0.03 per share, up 78.6% and 50% year-over-year, respectively. Also, cash generated from operations before changes in non-cash operating working capital came in at $75.70 million, an increase of 14% year-over-year.
Analysts expect NGD’s revenue for the fiscal year (ending December 2023) to increase 27.5% from the prior year to $770.28 million. Also, the company’s revenue and EPS for the fiscal year 2024 are expected to grow 14.7% and 21.2% year-over-year to $883.20 million and $0.09, respectively.
Over the past six months, the stock has gained 2.8% and 13.1% year-to-date to close the last trading session at $1.12.
NGD’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
NGD has an A grade for Growth and a B for Sentiment. It is ranked #11 out of 38 stocks in the Miners-Gold industry.
In addition to the POWR Ratings I’ve just highlighted, you can see NGD’s ratings for Value, Stability, Quality, and Momentum here.
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EGO shares were unchanged in premarket trading Wednesday. Year-to-date, EGO has gained 18.66%, versus a 14.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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