I am bullish on gold, and I believe that the precious metal Is likely to hit $2,500 an ounce in the next 12 months. In line with this view, it’s a good time to look at some of the best gold stocks to buy. If the precious metal surges, some of the promising gold stocks will deliver robust capital gains besides healthy dividend growth.
Let’s start by looking at the reasons to be bullish on gold. Well, it’s always good to be on the side of central banks, which have been engaged in a historically high level of gold buying. A survey also indicates that 24% of central banks intend to increase their gold holding in the next 12 months.
Furthermore, 62% of central banks opine that gold will have a greater share of reserves in the coming years. I am not surprised, as gold is the best store of value. So, what’s the reason for central banks mopping-up gold? I believe the key factors include inflation, geopolitical tensions, and currency diversification.
Given the positive outlook, let’s discuss the gold stocks to buy for value creation.
Source: Piotr Swat/Shutterstock
NEM) is the best name among gold stocks. The 3.8% dividend yield stock trades at a forward price-earnings ratio of 16.8. I would expect a 40% to 50% rally from current levels if gold trades at $2,500 an ounce.(NYSE:
To elaborate, Newmont expects a $400 million increase in free cash flow for every $100 increase in gold price. Therefore, a $500 increase in gold price would translate into $2 billion in incremental FCF annually. This will boost dividends and further improve the company’s credit metrics. Valuations will therefore adjust on the upside.
Last month, Newmont entered into a definitive agreement to buy NCMGF) for a consideration of $20 billion. This acquisition will boost the company’s gold reserves and help in diversification toward copper production. With an investment-grade balance sheet and a strong liquidity buffer, the acquisition does not stress the company’s credit profile.(OTCMKTS:
Going forward, Newmont also expects to lower it’s all-in-sustaining-cost. This will help in EBITDA margin expansion even if gold is sideways after the rally.
Kinross Gold (KGC)
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Among the smaller gold miners, Kinross Gold (NYSE:KGC) is poised for multibagger returns if gold trades at $2,500 an ounce. While KGC stock is a penny stock, it’s fundamentally strong, and there are multiple reasons to be bullish.
First, Kinross closed Q1 2023 with a total liquidity buffer of $1.7 billion. Additionally, the company’s operating cash flow for the quarter was $259 million. Kinross, therefore, has the high financial flexibility to pursue aggressive growth.
Last year, Kinross had to sell Russian assets due to geopolitical reasons. It’s likely that the company will pursue acquisition to boost its reserve and production profile.
It’s worth noting that the company’s current asset base ensures stable production through 2025. Assuming gold at $2,500 an ounce, the company will be positioned for annual OCF in excess of $1.5 billion. This will provide ample headroom for dividend growth. At a forward price-earnings ratio of 13.3, the stock is, therefore, a must-buy and hold.
Barrick Gold (GOLD)
Barrick Gold (NYSE:GOLD) is another attractive name among gold stocks to buy. The 2.3% dividend yield stock has been sideways for the last six months. However, a breakout on the upside seems imminent.
Recently, the company’s CEO, Mark Bristow, voiced high bullish view on gold and copper price. The CEO also indicated that the company is looking for potential takeover targets. A potential acquisition is also one of the upside catalysts.
For Q1 2023, Barrick Gold reported an operating cash flow of $776 million. This implies an annualized OCF potential of $3.1 billion. Cash flows are likely to be in excess of $5 billion if gold trades around $2,500 an ounce. This will provide ample headroom for robust dividend growth.
Barrick also has a strong gold and copper portfolio. Even without any potential acquisition, there is stable production visibility. GOLD stock seems undervalued, given an investment-grade balance sheet and cash flow profile.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in 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 modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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