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Royalty Companies Report Record Revenues

Source: Adrian Day for Streetwise Reports   08/18/2021

In Adrian Day’s Global Analyst, Adrian Day writes about the major gold companies on…

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This article was originally published by Streetwise Reports

Source: Adrian Day for Streetwise Reports   08/18/2021

In Adrian Day's Global Analyst, Adrian Day writes about the major gold companies on his list that have held quarterly earnings calls or have other news to share.

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) (154.88) had record production and revenue, with several mines producing above expectations, including their largest (and newest major) asset, Cobre Panama. Precious metals contributed only 75% in the last quarter — and gold less than 60% — but that was because the first contribution from the new Vale iron ore royalty covered more than a quarter. The company expects to be back to its 80% precious metals target going forward.

Due to the addition of the Vale assets, and due to the higher oil and gas prices, the company raised its guidance for full-year revenues from a range of $115 million–$135 million to $155–$170 million.

Diversified, with many opportunities eyed ahead

Franco is the most diversified of all the major royalty companies. Cobre Panama accounts for 19% of revenue, Candaleria 10%, with the rest all less than 10%. Following recent major investments in oil and gas and, more recently, iron ore, the company's focus is now on precious metals. They see opportunities to contributing capital financing to some of many medium-sized projects moving forward. Some of the assets on which it has existing royalties are also progressing, notably with BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) acquiring Norant's large Ring of Fire properties.

Not unexpectedly, the company's cash position was far lower than at the end of the first quarter following the cash purchase ($528 million) of the Vale assets, but it still has almost $200 million in cash and no debt. In the past, the company has taken on debt for a large acquisition a couple of times and then paid down quickly out of cash flow.

Solid balance sheet and low costs

With a rock-solid balance sheet, and low costs — general and administrative (G&A) expenses account for just 3% of revenue, while the company has a margin of 83% thanks to its large number of royalties (as opposed to streams) — the company is in top financial shape. The valuation looks high, but Franco — like the other large royalty companies — has always traded at high multiples because of the low-risk business model and the ability to increase revenues consistently over time.

Franco will be the gold investment of choice for generalists when they return to the market largely because of its long-term history of success. It remains a core holding for us, though we are not adding here.

Wheaton Raises Dividend After Record Revenues

Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) (44.42) reported record revenues and cash flows, broadly in line with estimate, for a good quarter. It reported a slight delay in the construction of the third phase at Salobo, its largest asset; it added a small gold stream; and increased its dividend for the fourth consecutive quarter for a yield of 1.4%. Its policy is to pay around 30% of the prior four quarters cash flow. Wheaton, debt-free, increased cash to $235 million; it has $2 billion on its line of credit.

Wheaton is a long-term holding for us. For the past year, Wheaton (and Royal) have underperformed Franco and Osisko. If you do not already own it, you can buy it here.

New Assets Come Onboard for Royal

Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) (116.09) also achieved record revenues. Two large assets are in the ramp-up phase — Cortez (as far as RGLD's royalty ground) and Khoemacau (with first delivery in July) — and these could see the company beat its full-year guidance.

The company's two largest assets, each a little under 20% of revenues, had mixed results. Pueblo Viejo had low silver recoveries, though the operators expect that to improve in coming quarters. Mount Milligan's operator said water access had improved and they expected the mine to perform well for the balance of the year as they continue to seek a long-term solution.

The company made two significant acquisitions during and after the quarter, including two on producing mines, a 1% royalty on Red Chris, and a large stream on producing NX mine. The company remains in strong financial shape with $226 million cash, $100 million in debt, and around $1 billion available on its line of credit. It can be bought by those under-invested in the sector.

Royalties Doing Well for Osisko, Though Financials Mixed

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) (12.57) reported record royalty ounces. Though 75%-owned Osisko Development reported some promising exploration results, particularly at Cariboo, that division affected Osisko's financial results negatively. Nearly half the attributable ounces came from Canadian Malartic, the mine Osisko originally discovered and operated before selling to Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) and Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE), retaining very attractive royalties.

The company made a couple of small but interesting royalty acquisitions, including a package of royalties over exploration properties in the western U.S., and a royalty on a Brazilian project that Eldorado Gold Corp. (ELD:TSX; EGO:NYSE) subsequently sold, potentially setting up the project for development. Another new investment, initially a small one, is in a private company, Carbon Streaming, but gives Osisko the right to participate at 20% in all new transactions, with potentially mid-teen returns.

Cash declined as did debt, though by a smaller amount. Osisko, ex-OD, has $88 million in cash. It increased its credit facility to CA$550 million, and increased its dividend by 10% (for a yield of 1.4%). Osisko is trading at a small discount in valuation to similar royalty companies.  Buy, under $12.50, if you do not own.

Barrick's Production Down Again, but Bonus Payout Made

Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) (20.27) saw production down 7% and, unlike the royalty companies, missed revenue forecasts, but said it was on track to meet full-year guidance of 4.4 to 4.7 million ounces of gold and over 400 million pounds of copper, with cash costs of $680 to $720 per ounce. As always at such a large diversified miner, there were pluses and minuses to the quarter, most notably among the negatives, a failure at the Goldstrike, which reduced Nevada production by around 10%. The production numbers had already been announced last month.

Barrick's production, weak this quarter on top on longer-term declines in output, is expected to be modestly lower next year, before stabilizing and being moderately higher for the rest of the decade.

The company announced the second tranche of its planned $750 million return of capital distributions, but said it was unlikely to be repeated next year. As of June 30, it had more than $5 billion in cash. While Barrick may see continued softness into next year, with the anticipated slip in production, it is a very strong buy for long-term investors.

A Trading Halt and Top Buys

Reservoir Capital Corp. (REO:TSX.V) (last 1.76) has been halted following the resignation of the chief financial officer (CFO). Most brokerage firms cancel open orders when a stock is halted, so we are canceling our open sell. We shall revisit when the stock resumes trading.

TOP BUYS NOW include, in addition to those discussed above, Midland Exploration Inc. (MD:TSX.V) (0.69); Lara Exploration Ltd. (LRA:TSX.V) (0.70); Orogen Royalties Inc. (OGN:TSX.V) (0.345); Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) (4.38); and Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) (26.51).

Originally published Aug. 15, 2021.

Adrian Day, London-born and a graduate of the London School of Economics, is editor of Adrian Day’s Global Analyst. His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."

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Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Franco-Nevada, Lara Exploration, Midland Exploration, Fortuna Silver Mines, Orogen Royalties. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Fortuna Silver, Pan American Silver, Midland Exploration, Osisko Gold Royalties, Wheaton Precious Metals, and Lara Exploration, companies mentioned in this article.

Adrian Day's Disclosures: Adrian Day's Global Analyst is distributed by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor's opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. ©2021. Adrian Day's Global Analyst. Information and advice herein are intended purely for the subscriber's own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

( Companies Mentioned: ABX:TSX; GOLD:NYSE, FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE, FNV:TSX; FNV:NYSE, LRA:TSX.V, MD:TSX.V, OGN:TSX.V, OR:TSX; OR:NYSE, PAAS:TSX; PAAS:NASDAQ, REO:TSX.V, WPM:TSX; WPM:NYSE, )

Precious Metals

Running a Fossil Fuel Business Isn’t What It Used to Be

It’s becoming more and more difficult to be in the fossil fuel business. On both sides of the Atlantic, lawmakers and unelected bureaucrats are turning…

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It’s becoming more and more difficult to be in the fossil fuel business. On both sides of the Atlantic, lawmakers and unelected bureaucrats are turning up the heat, so to speak, on companies over the issue of climate change.

In the U.S. House of Representatives, Democrats have launched an inquiry into whether oil companies have participated in so-called “climate disinformation.” Last week, letters were sent to top executives of Exxon Mobil, BP, Chevron and Royal Dutch Shell seeking records, and hearings are scheduled for next month.

Meanwhile, the Securities and Exchange Commission (SEC) is expected to propose a series of new disclosure requirements all publicly traded companies must make, possibly as soon as year-end, to inform investors about potential climate risks associated with their business.

In Europe, the strategy appears to be to choke off any and all lending to the fossil fuel industry. Next year, the European Central Bank (ECB) is expected to look into the trading operations of major banks in what’s being called a climate “stress test,” and at least one big activist investor group, ShareAction, is pressuring lenders to cut all ties to fossil fuels.

Of course, none of this accounts for the fact that fossil fuels still supply around 80% of the world’s energy.

Or that many leading oil and gas producers are investing billions in renewable energy, including wind and solar, and energy storage technology. Chevron, in fact, just unveiled plans to triple its investment in lower carbon energies to $10 billion through 2028.

Could Climate Scientists Be Held Liable?

Climate change was top of mind at the Gold Forum Americas conference I attended and spoke at last week in Denver.

In conversations I had with some of my peers, the question was raised whether certain scientists could be held financially liable for spreading their own “climate disinformation,” which has sown fear and prompted policymakers to enact new draconian taxes and regulations.

Here’s how one colleague put it: In nearly every other profession—from physician to engineer to money manager—there are mechanisms in place to hold bad actors accountable. Why is that not the case with scientists, who may make promissory or misleading statements that materially impact individuals and businesses?

The idea sounds farfetched, but it’s not completely unheard of. In 2012, an Italian court found six seismologists guilty of manslaughter for failing to give proper warning of an earthquake that killed some 300 people. This ruling was overturned in 2014, but it had the effect of putting public facing scientists around the world on high alert.

To be clear, I don’t support charging scientists with crimes. Modern technology, as advanced as it is, still cannot successfully predict earthquakes with any degree of certainty.

Fewer, Not More, Hurricanes Making Landfall in the U.S.

Perhaps the same is true of the climate. We are led to believe that climate change is responsible for causing more hurricanes, for instance, but if you look at the Environmental Protection Agency’s (EPA) own data, you’ll find that the number of North Atlantic hurricanes that strike the U.S. every year has been trending down over the past 120 years. To date, the deadliest natural disaster in U.S. history remains the Great Galveston hurricane, which pummeled the Texas city in 1900, several years before Henry Ford even began mass producing the Model T.

Number of North American Hurricanes that Reached the U.S., 1901 - 2018
click to enlarge

U.S. on the Verge of Becoming the Least Vaccinated G7 Country

Up until this point, I haven’t said anything about the media’s role in spreading FUD, or fear, uncertainty and doubt. The cause of a lot of people’s apprehensions can be laid at the feet of not just cable news channels, which sensationalize everything, but also social media platforms, which have allowed misinformation to run wild.

Here, I’m talking specifically about misinformation related to vaccines.

This topic also came up in Denver. I’m fully vaccinated against Covid and have even received a third booster shot, but many of my colleagues haven’t gotten their first jabs. When I ask why, they invariably say it’s because they don’t trust the government.

If that’s the case, I say, do they own gold or Bitcoin?

That aside, I believe the vaccine is our best hope to get back to life as it was before the pandemic. The planes and airports were packed on my way to and from Denver, but Transportation Security Administration (TSA) data shows that commercial air traffic is still down around 25% on average from the same time in 2019. That’s partly due to the fact that too many Americans are choosing not to get vaccinated.

In fact, the U.S. is about to become the least vaccinated high-income G7 country. Despite the U.S. having the largest stockpile of Covid vaccines, and despite it having a dramatic head start, the country will soon have the lowest vaccination rate of any G7 nation after Japan surpasses it.

Ancillary Fees Helped Keep Airlines Afloat in 2020

I’ll end with some positive financial news from 2020. In a year when air travel demand was clobbered by the pandemic, airlines managed to keep the lights on thanks in large part to ancillary fees. Like sales in general, ancillary fees fell in absolute terms, but they represented a bigger piece of airlines’ total revenue last year.

Ancillary Revenue as a Percent of Total Revenue
click to enlarge

Low-budget carriers appeared to benefit the most. Non-ticket sales were nearly 56% of Hungary-based Wizz Air’s total sales, the highest of any other company. Spirit Airlines was a close second, followed by Allegiant Air, Frontier Airlines and Ryanair.

More good news came out of Ryanair last week. The Irish low-cost carrier announced that it was lifting its growth target to 50% over the next five years, up from a previous target of 33%. This would mean Ryanair would carry more than 225 million passengers a year by 2026, after expanding into markets such as Italy, Scandinavia and Morocco. By this winter, the carrier hopes to operate about 90% of its pre-Covid capacity. Wheels up!

Curious to know the world’s top 10 airlines of 2021? Click here to see the countdown!

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (06/30/2021): Delta Air Lines Inc., American Airlines Group Inc., Ryanair Holdings PLC, easyJet PLC, Azul SA, Wizz Air Holdings PLC, Spirit Airlines Inc., Allegiant Travel Co., Southwest Airlines Co., Alaska Air Group Inc., Hawaiian Holdings Inc., United Airlines Holdings Inc.

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Economics

John-Mark Staude: Bullish On Uranium & Other Green Metals – The Daily Dive

On today’s Daily Dive, we welcome back John-Mark Staude, CEO of Riverside Resources (TSXV: RRI). Staude joins us today to
The post John-Mark Staude:…

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On today’s Daily Dive, we welcome back John-Mark Staude, CEO of Riverside Resources (TSXV: RRI). Staude joins us today to update us on the latest at Riverside, the supply and demand situation with copper, and the current outlook on gold. He also share his take on the Federal Reserve’s recent bond and interest rates policies, what commodities to watch, and the outlook for the market with respect to inflation movements.

Riverside Resources, listed on the TSX Venture exchange under the symbol “RRI”, is a unique take on the resource sector. The company bills itself as a prospect generator, with its business model focused on utilizing its database and experienced technical team to acquire and discover new potential exploration assets. The model has evidently worked very well for the company over its thirteen years of operation, with the firm having conducted a number of spin-outs and transactions that were beneficial to shareholders.


FULL DISCLOSURE: Riverside Resources is a client of Canacom Group, the parent company of The Deep Dive. The author has been compensated to cover Riverside Resources on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.

The post John-Mark Staude: Bullish On Uranium & Other Green Metals – The Daily Dive appeared first on the deep dive.

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Economics

7 Stocks to Buy for the Likely Fed Tapering in December

An active investor’s portfolio is significantly dynamic. For every major event, there are stocks to buy, sell or avoid. One such portfolio-shaping event…

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An active investor’s portfolio is significantly dynamic. For every major event, there are stocks to buy, sell or avoid. One such portfolio-shaping event is around the corner: The Federal Reserve is expected to taper in response to inflation.

The timing of the rate hike is still uncertain. However, there seems to be clarity on the point that the Federal Reserve will begin tapering around December. Federal Reserve Chair Jerome Powell has already said that it could start to reduce its monthly bond purchases in 2021.

The good part is that the Fed is communicating some indications of its plans. This is likely to ease the nerves of market participants.

However, by nature, asset markets are sensitive to news. Even if there is no meaningful correction, some volatility is likely to occur when the Fed begins tapering.

Therefore, it makes sense to adjust your portfolio. In my view, this is a good time to book profits in stocks that have witnessed a significant run-up in the last few quarters. At the same time, investors could benefit from exposure to low-beta stocks, or stocks that trade at attractive valuations.

With that in mind, investors should consider these seven stocks to buy ahead of a likely Fed tapering in December:

  • Walmart (NYSE:WMT)
  • JPMorgan Chase (NYSE:JPM)
  • Pfizer (NYSE:PFE)
  • Northrop Grumman (NYSE:NOC)
  • Chevron (NYSE:CVX)
  • AT&T (NYSE:T)
  • Newmont Corporation (NYSE:NEM)

Stocks to Buy: Walmart (WMT)

Source: fotomak / Shutterstock.com

WMT stock has traded sideways in 2021. With a low beta, some exposure to Walmart shares can be considered before a potential Fed tapering.

It’s also worth noting that the consumption sector is a key growth driver for the U.S. economy. With retail spending being a key part of consumption expenditures, Walmart stock is attractive.

Additionally, the approaching holiday season can accelerate sales for the fourth quarter in 2021 as well as Q1 2022.

Deutsche Bank recently pointed out that Walmart’s membership program is gaining momentum. The subscription service, which was launched one year ago, now has 32 million U.S. members. Deutsche Bank further believes subscription growth is at an “inflection point.” As subscribers swell, it will further boost the company’s cash flows.

It’s also worth noting that for Q2 2022, the company reported 5.2% comparable sales growth. Additionally, its e-commerce growth has remained strong. Walmart is creating omnichannel presence coupled with inroads in the grocery segment.

WMT stock also has a current dividend yield of 1.52%. If comparable store sales growth remains robust, a dividend increase can be expected.

JPMorgan Chase (JPM)

JPMorgan Chase (JPM) lettering on a corporate office in New York City.Source: Roman Tiraspolsky / Shutterstock.com

Over a 12-month period, JPM stock is higher by 61%. However, the stock has remained sideways for the last six months. At a forward price-to-earnings (P/E) ratio of 13.09x, the stock might be poised for another breakout after the current consolidation.

Another important point to note is that a possible tapering and a rate hike in 2022 is likely to be positive for the financial sector. Throughout the pandemic, non-core banking services have been a key earnings driver.

For Q2 2021, the bank reported non-interest revenue of $18.5 billion and net-interest income of $12.9 billion. However, with the visibility of a rate hike, the core banking segment is likely to witness improved performance.

Once net-interest income margin starts trending higher, banking stocks are likely to witness a meaningful rally. At the same time, investment banking and wealth management revenue will probably remain steady.

JPM stock is also a quality dividend stock for the portfolio. It currently offers an annualized dividend of $3.60, which translates into a healthy dividend yield of 2.3%.

Overall, JPMorgan is well-positioned from a fundamental perspective. If economic activity remains steady along with a rate hike done in baby-steps, JPM stock has ample upside headroom.

Stocks to Buy: Pfizer (PFE)

blue Pfizer (PFE) logo on the windows of a corporate buildingSource: photobyphm / Shutterstock.com

PFE stock is also attractive with its low volatility and robust dividend yield of 3.5%. At a forward P/E ratio of 12.12x, the stock seems positioned for further upside in the coming quarters.

For the current year, Pfizer expects revenue of $33.5 billion from the Covid-19 vaccine. The company expects to ramp up manufacturing and should be able to produce three billion doses of the vaccine by the end of 2021. As a third dose of the vaccine is being recommended for at-risk groups, the outlook for Pfizer is bright for 2022.

At the same time, the company has been delivering healthy growth excluding the Covid-19 vaccine. Through 2025, Pfizer expects revenue to increase at a compound annual growth rate (CAGR) of 6%. This seems entirely likely considering the company’s deep pipeline of candidates. Currently, it has 40 products in Phase two and 23 products in Phase three.

Last month, Pfizer also announced the acquisition of Trillium Therapeutics for a consideration of $2.26 billion. The acquisition will diversify the company’s oncology pipeline. With Pfizer likely to generate healthy cash flows from sales of its Covid-19 vaccine, there is ample financial headroom to pursue inorganic growth.

Overall, PFE stock is trading at attractive levels and a strong breakout on the upside is due.

Northrop Grumman (NOC)

Northrop Grumman (NOC) logo on a corporate buildingSource: Kristi Blokhin / Shutterstock.com

NOC stock is another low-beta name that’s trading at an attractive forward P/E of 13.7x. Additionally, the stock offers an annualized dividend of $6.28.

The downside risk seems limited for the stock at current levels. Global defense spending also keeps trending higher, giving Northrop Grumman shares upside potential.

As of Q2 2021, Northrop reported an order backlog of $76.6 billion. For the current year, the company has a sales guidance of about $36 billion. Therefore, the order backlog provides two years of revenue and cash flow visibility.

It’s also worth noting that for the first six months of 2021, the company’s space systems reported revenue growth of 32% to $5.3 billion. Mission systems sales increased at a healthy 8% for the same period. These segments are likely to be Northrop Grumman’s key revenue and cash flow drivers.

Further, for the first half of 2021, the company reported transaction-adjusted free cash flow (FCF) of $1 billion. This implies an annualized FCF of $2 billion. Therefore, dividends are sustainable. As a matter of fact, the company increased dividends by 8% in the last quarter. Overall, NOC stock is one of the the top stocks to buy as the Fed tapering looms.

Stocks to Buy: Chevron (CVX)

Chevron Earnings: CVX Stock Sinks Amid Spending CutsSource: Tada Images / Shutterstock.com

Data from the Federal Reserve Bank of Dallas indicates that the actual gross domestic product (GDP) is quickly approaching the potential GDP. With a recessionary gap, the economy still has potential for accelerated growth.

I am therefore bullish on oil, and CVX stock looks appealing after an extended period of consolidation. A key reason to like the stock is the annualized dividend of $5.36, which translates into a yield of 5.54%.

Chevron’s assets have a low breakeven point. Therefore, even at oil prices of $60 per barrel, the company is positioned to deliver healthy cash flows. Further, Chevron has a strong balance sheet with a net-debt ratio of 21%.

It’s worth noting that the company’s reserve-to-replacement ratio has averaged 99% over the last five years. With a healthy financial profile, Chevron is positioned to maintain production and boost reserves. The company already has a diverse portfolio of unexplored assets.

High financial flexibility will also allow Chevron to invest in the renewable energy sector over the next few years. The company plans to significantly ramp up volumes in renewable natural gas and biodiesel.

CVX stock has a relatively high beta of 1.3. However, at a forward P/E of 14.39x, the stock seems to have a low downside risk.

AT&T (T)

Image of AT&T (T stock) logo on a gray storefront.Source: Jonathan Weiss/Shutterstock

T stock has significantly underperformed in the last year. At a forward P/E of 8.47x, the stock looks attractive with minimal downside risk. On the other hand, value could be unlocked with the upcoming split from its media division.

It’s true that AT&T disappointed income investors with the announcement that dividends will be cut by half after Warner Media splits off. However, I expect the dividend cut factor will be largely offset by value creation from a leaner organization.

An important point to note is that AT&T has invested extensively in the mobility segment in the last five years. This is already showing results with healthy subscriber addition in the post-paid and fiber segment.

Even HBO Max and HBO subscribers have increased at a healthy pace. AT&T has guided for 70 to 73 million global subscribers by the end of 2021. Once the merger with Discovery is completed, the combined entity will be one of the biggest spenders in content creation.

Therefore, there are ample upside catalysts for T stock. Further, with some volatility expected in the broad markets, this low-beta stock looks appealing.

Stocks to Buy: Newmont Corporation (NEM)

Newmont (NEM) logo on a mobile phone screenSource: Piotr Swat/Shutterstock

It might come as a surprise that I am talking about a gold miner before a Fed tapering. But I believe there are a few important factors that make Newmont a worthwhile buy.

First, NEM stock has a low beta and a dividend yield of 3.98%, which is sustainable. Further, the stock trades at an attractive forward P/E of 17.73x.

It’s also worth noting that the Fed tapering is likely discounted in gold prices. Even after the first rate hike in 2022, real interest rates will remain negative. This is positive for gold and other precious metals.

From a business perspective, Newmont Mining has a quality asset base. The company is positioned for steady gold production over the next decade. At the same time, Newmont expects a gradual decline in all-in sustaining costs in the next few years.

Therefore, the gold miner is worth holding for the long-term. The company also has a strong balance sheet and is positioned for free cash flow in excess of $2 billion for the year.

The stock is underperforming and therefore presents a good opportunity for investors to consider fresh exposure. Even if the stock is sideways, healthy dividends make NEM stock worth adding to a portfolio.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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