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JP Morgan says these three gold stocks could rise 40% (or more)
Let’s talk about gold. The precious metal is the traditional safe haven investment, backed by its use – which began 5,000 years ago – as a trusted store of value. Investors who want to protect their portfolio and secure their wealth are traditionally bought heavily in gold, and the price of gold is sometimes used as a proxy (albeit a reverse) for overall economic health. In a recent report, investment firm JP Morgan looked at the state of the gold industry, specifically the gold mining industry, at length. Analyst Tyler Langton points to an underlying paradox in two basic facts about gold mines. ‘Over time, in a commodity industry, producers with the longest life expectancy the cheapest producers tend to be the relative winners … Gold mines, compared to base metals, usually have much shorter mines (sic), and the gold miners have to focus on replacing reserves to maintain production levels, ”Langton noted. At first glance, Langton’s paradox seems to point away from heavy investments in gold mines. After all, these are high-risk commodity producers. But the current times are actually pretty good for gold workers. Prices have increased compared to recent years; the metal now runs just under $ 1,800 per ounce, but it peaked above $ 2,000 in August last year, at the peak of the corona closures, and was as low as $ 18 just 18 months ago 1 200. The current high prices promise producers well. Langton states that he believes current prices are supporting, with gold and gold mines as a hedge against ‘macro uncertainty’. He believes that the main sources of support can be found in ‘real interest rates that stay lower for longer and COVID-19 stimulus measures that continue to continue the central bank’s balance sheet.’ With this in the background, Langton and his colleagues began to pick the gold mining supplies they consider winners in the current environment. It is surprising that they like the companies that show discipline over M&A activities, a focus on free cash flow and good returns to shareholders. Using the TipRanks database, we have summarized the details of a number of recent selections. Is it as good as gold? Analysts seem to think so; all are buy-rated and offer potentially significant upside. Let’s go dig. Kinross Gold Corporation (KGC) Kinross Gold is a $ 8.6 billion middle capital company with active mining operations in the US, Brazil, West Africa and Russia. Together, these operations have proven and probable gold reserves of 29.9 million ounces. The company leads to 2.4 million ounces of total production for 2021, rising to 2.9 million ounces by 2023. The profitability of the company can be seen by the cost of sales per ounce, at $ 790, and the overall sustainable cost, from $ 1,025 per ounce. . With gold currently trading at $ 1,782 on the stock exchange, Kinross’ short-term success is clear. Two sets of statistics highlight Kinross’s profitability. First, the company’s recent record of quarterly results shows a steadily rising revenue and earnings. Aside from a decline in the first quarter of the year, at the start of the corona crisis, Kinross’s revenue has been rising steadily since early 2019 – and even in 2020, each quarter showed a year-on-year increase. After seven years without dividend payments, Kinross has used its strong performance in recent months to recover the company’s dividend. Payments are still being made irregularly, but since the announcement in September 2020 that the dividend will be reinstated, two payments have been made and a third has been announced for March this year. Each payment was for 3 cents per share, which equates to a modest return of 1.6%. The key point here is not the strength of the returns, but rather the confidence that management has shown in the near to medium term through restarted dividend payments. Based on current production estimates, payments are expected to continue until 2023. Tyler Langton, in his notes on Kinross, comes to a positive conclusion: ‘Given the expected growth projects and the pipeline of additional projects, we think Kinross will be able to maintain average annual production of 2.5 mm oz. over the next decade. The company has an attractive cost profile and we expect the cost to decrease over the next few years. The company should also generate attractive strong levels of FCF at current gold prices, and we expect Kinross to focus this cash on internal growth projects and its dividend. In line with these remarks, he chooses Kinross as JPM’s ‘top choice in the gold sector’ and rates the stock as overweight (ie a buy). Its price target of $ 11 indicates an upward potential of 61% in the coming year. (To view Langton’s record, click here.) Kinross gets a strong buy recommendation from the analyst’s consensus, based on a 6 to 2 split between the Buy and Hold reviews. Wall Street analysts have set an average price target of $ 11.25, slightly more bullish than that of Langton, implying an upward one year of 64% from the current trading price of $ 6.85. (See KGC stock analysis on TipRanks) SSR Mining, Inc. (SSRM) As we head north to Canada, we now look at SSR Mining in Vancouver. It is another mining industry that produces gold and silver in quantity through four active mines in Canada, the USA, Argentina and Turkey. The Canadian, American and Turkish operations mainly produce gold, while the Puna company is Argentina’s largest silver mine. Although SSR missed the top and bottom line estimates in its latest quarterly report, the company met the proposed guidelines for the full 2020 production numbers in 2020. Gold production for the year reached 643 000 ounces, with 31% of it in the fourth quarter. Silver production in the Puna mine reached 5.6 million ounces, which showed the clues. Production in the fourth quarter was 39% of the total. Last November, the company announced that it will launch a dividend policy from 1K21. The ‘base dividend’ is set at 5 cents per share, or a return of 1%; As with KGC above, the key point is not whether the dividend is high or low, but that management is starting to pay it out – a sign of confidence in the future. Langton bases his assessment of SSRM on his strong free cash flow forecast and writes: “At current gold forecast prices, we estimate that SSR will generate almost $ 400mm to FCF in 2021 and about $ 500mm per year from 2022-2024. Furthermore, from a 2021 basis, we predict that SSR will generate cumulative FCF from 2021-2025 of US $ 2.3 billion, or approximately 59% of its current market capitalization … ”In line with his remarks, Langton states an overweight ( ie buy) rating on the stock, along with a price target of $ 24 indicating an upward 60% for the next 12 months (To see Langton’s record, click here. There are 8 recent reviews on SSRM shares – and each of them is a buy, which makes the Strong Buy’s consensus rating unanimous here, the stock selling for $ 15.25, and the robust average target of $ 28.78 indicating a high upward one-year-89% (See SSRM stock analysis on TipRanks) Newmont Mining (NEM) Last on the list, Newmont, is the world’s largest gold miner, with a market capitalization of $ 45.78 billion and active production in a variety of metals, including gold, silver, copper, zinc, and lead. The company has assets – both operations and prospects – in North and South America, Africa and Australia, and is the only gold miner listed on the S&P 500. With the last detail in mind, it is noteworthy that the NEM shares rose by 29%. in the last 12 months – more than the S & P’s profit of 16% over the same period. In the 3K20, the company showed $ 3.12 billion in revenue. Although it missed the forecast, it improved by 5.4% in the third quarter of the previous year. The Q3 results were also a company record with a free cash flow of $ 1.3 billion. Results below expectations were also a general pattern for the company’s performance in 2020 in the first and second quarters. The corona crisis suppressed the results, but even the depressive results were higher than year-on-year. Newmont has an active capital return program for shareholders. Since the beginning of 2019, the company has used both dividends and share repurchases to return capital to stakeholders, amounting to $ 2.7 billion. Last January, Newmont announced a continuation of the $ 1 billion repurchase. With a view to 2021, the company also announced a new dividend framework, which annualized the base payment to $ 1 per share, and reiterated its commitment to return on capital. JPM’s Michael Glick led the note on Newmont and began by acknowledging the company’s strong production: “We predict that NEM’s attributable gold production will remain relatively stable during the period 2021-2025 at around 6.5-6.7 mm oz … “From the company’s middle Production outlook from Glick further stated: ‘As far as production is concerned, the continuous expansion at Tanami should result in increasing production and lower cash costs from 2023. In addition, we expect Newmont to launch its Ahafo North projects and Yanacocha Sulfides will approve this year. which should yield increasing production for the company after the approximately three-year development period of the projects. Glick likes Newmont’s FCF and production numbers and uses them to support his overweight (buy) rating. Its $ 83 price target implies a 46% increase for the coming months. (To see Glick’s record, click here.) Newmont, despite all its strengths, still gets a moderate buy rating from the analyst’s consensus. It is based on 8 reviews, including 5 buy and 3 holders. The average price target is $ 74.97, indicating room for 31% growth from the current trading price of $ 56.99. (See NEM stock analysis on TipRanks) To find great ideas for gold stocks trading at attractive valuations, visit TipRanks’ best-selling stocks, a newly launched tool that unites all TipRanks stocks. Disclaimer: The opinions expressed in this article are solely those of the proposed analysts. The content is for informational purposes only. It is very important to do your own analysis before investing.