2019 has been quite an eventful year for gold with the major highlight being the yellow metal crossing the threshold limit of $1,500 an ounce— at levels last seen in 2013. Uncertainty in the U.S-China trade front, geopolitical concerns between the United States and the Middle East, the Brexit mayhem and concerns over the global economic outlook have compelled investors to seek safe-haven investment options like gold.
Further, three rate cuts by the Fed this year has been favoring the rally. Notably, lower the interest rates, lesser will be the opportunity cost of holding non-yielding bullion, making gold an attractive option for investors holding other currencies. A sluggish manufacturing sector also drove the gold prices.
So far this year, gold prices globally have gained about 15%, a striking contrast to the prior year decline of 2%. Gold seems set for its strongest annual increase since 2010, wherein it had reported growth of 29.5%.
Newmont Mining Corporation’s acquisition of rival Goldcorp for $10 billion to form Newmont Goldcorp Corporation NEM hogged the headlines in the industry this year. This follows the $5.4 billion merger between Barrick Gold Corporation and Randgold Resources Limited last year. The trend of consolidation in the industry seems to have revived after a lull over the past few years when the companies were forced to cut debt levels and slash capital expenditure thanks to lower gold prices. Given that gold production is anticipated to drop eventually owing to scarcity of new discoveries and depleting existing resources, miners prefer to build up reserves through acquisitions rather than digging for new ones that are inherently risky and capital intensive.
Major markets India and China (that roughly account for around 50% of consumer gold demand) continue to sustain demand for gold. The expanding middle class in China and India, and broader economic growth, will have a significant impact on gold demand. Use of gold across energy, healthcare and technology is on the rise. Moreover, the yellow metal has long been considered as a safe haven investment in times of financial or political uncertainty. Emerging market central banks are turning their attention to gold after years of exposure to the U.S. dollar, and as a natural currency hedge against other reserve currencies. So, there will be an eventual demand-supply imbalance that is likely to drive gold prices, which bodes well for the industry.
Industry Rides on Gold Prices
Rising gold prices bode well for the Mining – Gold industry, which has to contend with escalating production costs including the cost of electricity, wages, water and materials. The industry has outperformed both the S&P 500 Index and the Basic Material sector in a year’s time. While the stocks in the industry have collectively gained 41.0%, the S&P 500 and the Basic Material Sector have rallied 27.1% and 23.6%, respectively.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Mining- Gold Industry, which is a 33-stock group within the broader Zacks Basic Materials Sector, currently carries a Zacks Industry Rank #55, which places it at the top 22% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Using our Zacks Screener we have handpicked five gold-mining stocks, which carry a Zacks Rank of #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have outperformed the industry, sector and the S&P 500 so far this year. These are poised to carry the momentum going into 2020 backed by healthy earnings growth projections for fiscal 2020. These have also been witnessing positive earnings estimate revisions lately.
The share price performance of these five stocks is shown in the chart below.
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Franco-Nevada Corporation FNV: This Toronto, Canada-based company has a market capitalization of $18.19 billion. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for 2020 earnings has moved up 15% in the past 90 days. The Zacks Consensus Estimate for earnings for 2020 indicates year-over-year improvement of 25.4%. The company has delivered an average positive earnings surprise history of 11.75% in the trailing four quarters. Shares of this company have rallied 42% year to date.
Kirkland Lake Gold Ltd. KL: This Toronto, Canada-based company currently has a Zacks Rank #1 and a market capitalization of $8.56 billion. Earnings estimates for 2020 have moved up 19% in the past 90 days. The Zacks Consensus Estimate for 2020 earnings suggests year-over-year growth of 22.1%. The company beat estimates in the trailing four quarters by 11.1%, on average. Shares of the company have surged 61% year to date.
Sibanye Gold Limited SBGL: This South-African gold mining company carries a Zacks Rank #2. The company has a market capitalization of $5.19 billion. Earnings estimates for 2020 have moved up 25% over the past 90 days. The Zacks Consensus Estimate for fiscal 2020 earnings indicates year-over-year improvement of 280.5%. Shares of this company have soared 235% year to date.
Yamana Gold Inc. AUY: This Toronto-based company has a market capitalization of $3.31 billion and a Zacks Rank #2. Earnings estimates for 2020 have moved up 80% in the past 90 days. The Zacks Consensus Estimate for fiscal 2020 earnings indicates year-over-year growth of 55.8%. The company beat estimates in the trailing four quarters by 100%, on average. Shares of the company have surged 52% year to date.
Sandstorm Gold Ltd SAND: This Vancouver, Canada-based company has a market capitalization of $1.17 billion. The stock currently carries a Zacks Rank #2. The Zacks Consensus Estimate for 2020 has been revised upward 56% in the past 90 days and indicates year-over-year growth of 83.33%. The stock has gained 54% so far this year.
Zacks Top 10 Stocks for 2020
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