Given its status as a reliable store of value, gold tends to perform well in times of economic uncertainty and is often used as a hedge against inflation. With high demand for the precious metal, prices of gold are likely to edge higher. Moreover, experts expect gold to reach new highs and beyond in 2024.
Given an optimistic long-term outlook for gold, it could be wise to buy quality gold stocks Alamos Gold Inc. (AGI), Harmony Gold Mining Company Limited (HMY), and Eldorado Gold Corporation (EGO) for stable returns and portfolio diversification.
Gold is often seen as a hedge against inflation. When the value of currencies drops due to rising inflation, investors tend to buy gold to preserve the value of their investment, which boosts the demand for gold, pushing its prices higher. Inflation posted its biggest monthly increase of 2023 in August.
The Consumer Price Index (CPI) rose 0.6% for the month, compared to an increase of 0.2% in July. On an annual basis, consumer prices accelerated 3.5%, although that is significantly down from a peak of 9.1% hit in June 2022. The core CPI grew 0.3% and 4.3%, against 0.2% and 4.3% estimates, respectively.
While the Federal Reserve still hopes to bring down the inflation rate to its target of 2%, it has paused interest rate hikes this month, holding its key lending rate steady at the 22-year high of 5.25% to 5.5%. While the Fed skipped hiking rates for the second time this year, it hints at another increase before the year-end.
While gold prices may remain volatile in the short term due to uncertainty surrounding the Fed’s interest rate trajectory, experts believe that the medium to long-term outlook for gold appears optimistic.
Gold prices are on track to surge to all-time highs next year amid tapering interest rates and looming recession worries that elevate the precious metal’s role as a safe haven asset.
“I do see gold move above $2,100 in late 2023, early 2024 as a trading level,” said TD Securities’ managing director and global head of commodity strategy, Bart Melek. Gold has outperformed other major asset classes in the past 12 months, Melek wrote in a recent report.
Further, Livermore Partners predicts gold prices to rise more than 26% by the end of 2024 and calls for a target of $2,500 as recessionary fears hang on the horizon.
UOB also expects gold prices to set new records, but only by the second half of next year. “Key driver in our positive outlook for gold is anticipated peak in Fed rate hiking cycle as well as upcoming topping out of US Dollar strength,” said Heng Koon How, the bank’s head of markets strategy, global economics, and markets research.
Heng pointed out that central bank gold purchases have been “consistently strong,” along with solid consumer demand for the precious metal. “We also see a return of physical gold jewelry demand from China and India as both economies stabilize and retail spending returns,” he added.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Miners - Gold stock picks, beginning with the third choice.
Stock #3: Eldorado Gold Corporation (EGO)
Headquartered in Vancouver, Canada, EGO, with its subsidiaries, engages in the mining, exploration, extraction, processing, and sale of mineral products, mainly in Canada, Turkey, Greece, and Romania. The company primarily produces gold, silver, lead, and zinc.
On June 14, 2023, EGO completed a strategic investment of C$81.50 million ($60.42 million) by the European Bank for Reconstruction and Development (EBRD). In June, the funds were invested in the Skouries project in Northern Greece and credited against the company’s 20% equity funding commitment according to the terms of the project financing facility closed on April 5, 2023.
On June 7, EGO announced the completion of a bought deal offering for gross proceeds of C$135.20 million ($100.23 million). The proceeds from the offering might be used to fund growth initiatives across the company’s portfolio, including a few not currently contemplated within its five-year plan, and for general corporate and working capital purposes.
On May 30, the company announced the closing of C$81.50 million ($60.42 million) strategic investment in Eldorado by the EBRD and concurrent C$135 million ($100.08 million) bought deal financing.
“Proceeds from this financing will strengthen the Company’s balance sheet and is expected to provide additional optionality across our global portfolio,” said George Burns, EGO’s President and CEO.
EGO’s trailing-12-month gross profit margin of 46.42% is 64.3% higher than the 28.25% industry average. Likewise, the stock’s trailing-12-month EBITDA margin of 37.69% is 118% higher than the industry average of 17.29%.
For the second quarter that ended June 30, 2023, EGO’s revenue increased 7.7% year-over-year to $229.90 million, primarily due to higher sales volumes and higher average realized gold price. Gold sales grew 2.3% from the year-ago value to 110,134 ounces, mainly due to increased production at Kisladag.
Also, the company’s net earnings were $1.50 million or $0.01 per share, compared to a net loss of $22.90 million or $0.12 per share in the prior year’s quarter. Its adjusted EBITDA rose 20.7% year-over-year to $106.80 million. Net cash generated from operating activities from continuing operations was $75.30 million, up 178.9% year-over-year.
Analysts expect EGO’s revenue to increase 15.7% year-over-year to $1.01 billion for the fiscal year ending December 2023. The consensus EPS estimate of $0.42 for the current year reflects a 738.3% year-over-year improvement. Also, the company has topped the consensus EPS estimates in three of the trailing four quarters.
EGO’s stock has gained 14.4% year-to-date and 66% over the past year to close the last trading session at $9.71.
EGO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
EGO has a B grade for Growth. In the B-rated Miners - Gold industry, it is ranked #14 out of 40 stocks.
Beyond what we stated above, we also have EGO’s ratings for Quality, Stability, Sentiment, Value, and Momentum. Get all EGO ratings here.
Stock #2: Alamos Gold Inc. (AGI)
Based in Toronto, Canada, AGI engages in acquiring, developing, and extracting precious metals in Canada and Mexico. The company mainly explores for gold and silver deposits. It holds 100% interest in the Young-Davidson mine and Island Gold mine located in Ontario, Canada, and Mulatos mine located in Sonora, Mexico.
On September 14, AGI announced ongoing exploration success at Mulatos, including expanding high-grade gold mineralization outside of Mineral Reserves and Resources at Puerto Del Aire and intersecting wide intervals of significant gold mineralization at the regional Capulin target.
On May 23, AGI completed the acquisition of all the issued and outstanding common shares of Manitou Gold Inc. (MTU). A Final Order was granted by the Ontario Superior Court of Justice on May 19, approving the Plan of Arrangement under which the transaction was implemented.
This acquisition would add significant exploration potential in a relatively underexplored segment of the Michipicoten Greenstone Belt by more than tripling its land package around the Island Gold Mine.
AGI’s trailing-12-month gross profit margin and EBITDA margin of 53.51% and 46.24% are 89.4% and 167.5% higher than the industry averages of 28.25% and 17.29%, respectively. Also, the stock’s trailing-12-month net income margin of 16.98% is 161% higher than the industry average of 6.51%.
In the second quarter that ended June 30, 2023, AGI’s operating revenues increased 36.5% year-over-year to $261 million. Its earnings from operations were $88.60 million, up 244.7% year-over-year. The company’s adjusted net earnings grew 102.4% from the year-ago value to $75.10 million, and its adjusted earnings per share rose 102.4% year-over-year to $59.30.
Furthermore, AGI produced a record 136,000 ounces of gold, an increase of 31% from the first quarter of 2023, driven by solid production growth from the Mulatos District. The company generated free cash flow of $61.60 million and cash flow from operating activities of $141.80 million.
Analysts expect AGI’s revenue for the fiscal year (ending December 2023) to grow 20.7% year-over-year to $990.94 million. The company’s EPS for the ongoing year is expected to increase 85.7% year-over-year to $0.52. Moreover, AGI surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of AGI have gained 13.7% over the past six months and 72.3% over the past year to close its last trading session at $12.49.
AGI’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Quality. Within the B-rated Miners - Gold industry, it is ranked #12 of 40 stocks.
To see additional grades for Value, Stability, Sentiment, and Momentum for AGI, click here.
Stock #1: Harmony Gold Mining Company Limited (HMY)
Headquartered in Randfontein, South Africa, HMY engages in the exploration, extraction, and processing of gold. Also, the company explores for uranium, silver, copper, and molybdenum deposits. It has eight underground operations in the Witwatersrand Basin; an open pit mine on the Kraaipan Greenstone Belt; and various surface source operations in South Africa.
HMY’s trailing-12-month EBITDA margin of 22.69% is 31.3% higher than the 17.29% industry average. And the stock’s trailing-12-month net income margin of 9.78% is 50.4% higher than the industry average of 6.51%. Moreover, its trailing-12-month ROTA of 8.42% is significantly higher than the industry average of 112.08%.
HMY’s revenue has increased at a CAGR of 19% over the past three years. The company’s EBITDA has improved at a 41.2% CAGR over the same period. Additionally, its EBIT and total assets have grown at CAGRs of 155.6% and 8.6% over the same time frame, respectively.
For the fiscal year that ended on June 30, 2023, HMY’s revenue increased 15.5% year-over-year to R49.28 billion ($2.60 billion). The increase in revenue was due to higher underground recovered grades and a higher average gold price received. Its gross profit grew significantly year-over-year to R9.74 billion ($514.84 million).
The company’s operating profit came in at R7.09 billion ($374.77 million), compared to an operating loss of R755 million ($39.91 million) in the previous year. Its net profit for the year and EPS stood at R4.88 billion ($257.95 million) and R777 versus a net loss and loss per ordinary share of R1.01 billion ($53.39 million) and R172 a year ago, respectively.
Street expects HMY’s revenue for the fiscal year (ending June 2024) to increase 8.5% year-over-year to $2.86 billion. The company’s EPS for the same period is expected to grow 35.3% year-over-year to $0.60.
HMY’s stock has gained 16.9% over the past six months and 104.7% over the past year to close the last trading session at $4.36.
HMY’s POWR Ratings reflect its robust prospects. The stock has an overall B rating, translating to Buy in our proprietary rating system.
HMY has an A grade for Growth and a B for Value. In the 40-stock B-rated Miners - Gold industry, it is ranked #10.
Click here to see HMY ratings for Momentum, Stability, Sentiment, and Quality.
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AGI shares were unchanged in premarket trading Friday. Year-to-date, AGI has gained 24.34%, versus a 14.05% 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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