Though the stock has rebounded somewhat after last week’s sell-off, the rally could be just a minor relief in the continuous sell-off. Last week, the Dow hit its first eight-week losing streak, while the S&P 500 fell briefly into a bear market on an intraday basis. The Nasdaq is down 20% or more from its prior high, while the S&P 500 and the Dow are 10% or more down from their prior highs.
Meanwhile, the Federal Reserve’s hawkish tilt to tame the 40-year high inflation is lifting short-term borrowing costs significantly. Kansas City Federal Reserve Bank President Esther George expects the Fed to raise the target interest rate to about 2% by August, depending upon how the forces of demand and supply affect the current inflationary situation.
As gold is traditionally seen as an inflation hedge, it might be interesting to look at the gold market, given the inflationary backdrop. Also, I am going to analyze prominent gold stocks Yamana Gold Inc. (AUY), B2Gold Corp. (BTG), and Centerra Gold Inc. (CGAU) against this backdrop.
Click here to check out our Gold and Silver Industry Report for 2022
The Gold Market
As of May 11, 2022, the greenback has lost 86% of its purchasing power since 1971. However, gold has risen more than 600% in the same period of time, which is why investors often use it as an inflation hedge.
Amid recent skyrocketing inflation, investors have been increasingly turning toward yellow metal to protect their investments. According to the World Gold Council, physical demand for gold surged 34% year-over-year to 1,234 tons in the first quarter of 2022, marking the highest quarterly demand since 2018. Global gold demand jumped 19% above its five-year average in the same quarter. Moreover, central banks added 84 tons to their global gold reserves in the quarter.
Gold is currently trading up 2% year-to-date at about $1,865 an ounce and Goldman Sachs is forecasting that yellow metal will hit $2,500 in 2022. Thus, investors should consider adding gold to their portfolios.
Some investors buy physical gold, others add prominent gold ETFs to their portfolios, and income investors look to gold mining stocks. That’s because many gold mining stocks pay healthy dividends.
Performance of Industry Leaders
One prominent name in the gold mining industry is Newmont Corporation (NEM). With a market capitalization of $53.52 billion, the company’s stock has gained 8.7% this year, largely outpacing the broader market. It has gained 21.5% over the past six months. Another established player in the industry, Barrick Gold Corporation (GOLD), has a $36.93 billion market capitalization. Its stock has gained 9.1% year-to-date and 6.7% over the past six months.
GOLD’s CEO Mark Bristow remains optimistic and believes that the metal is standing its ground amid economic and geopolitical issues. He also added that “the one thing you can't print is gold.”
Prominent Gold Stocks
The SPDR Gold Shares (GLD) ETF gained 1.1% this year, while the S&P 500 tumbled 16.6%. Over the past six months, GLD has surged 3.3% versus the broader market’s 15.3% slump. Hence, we think the following fundamentally strong gold stocks might be solid bets:
Yamana Gold Inc. (AUY)
AUY is a precious metals producer that engages in gold and silver production and holds development stage properties and land positions over the Americas, including Canada, Brazil, Chile, and Argentina. The company is headquartered in Toronto, Canada.
For the fiscal first quarter ended March 31, AUY’s revenue increased 4.7% year-over-year to $441.90 million. Adjusted net earnings rose 21.5% from the prior-year quarter to $83.60 million. Adjusted net earnings per share improved 28.6% from the same period the prior year to $0.09.
The consensus EPS estimate of $0.08 for the fiscal quarter ending September 2022 indicates a 14.3% year-over-year increase. The consensus revenue estimate for the same quarter of $489.10 million reflects an improvement of 8.2% from the prior-year period. Moreover, AUY has an impressive surprise earnings history, as it has topped consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 23.2% year-to-date and 26.5% over the past six months to close yesterday’s trading session at $5.20. AUY also has a 2.23% dividend yield.
AUY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
AUY has a Sentiment grade of B in sync with its favorable analyst expectations. The stock also has a B grade for Quality. This is consistent with its trailing 12-month EBITDA margin and levered FCF margin of 53.00% and 17.60%, which are 148.5% and 206.4% higher than their respective industry averages of 21.33% and 5.75%.
In the 37-stock Miners – Gold industry, AUY is ranked #6. Click here to see the additional POWR Ratings for AUY (Growth, Value, Momentum, and Stability).
B2Gold Corp. (BTG)
BTG, based in Vancouver, Canada, is a gold producer that primarily operates in three mines located in Mali, the Philippines, and Namibia. The company also holds a major interest in the Kiaka Project in Burkina Faso.
BTG’s gold revenue increased 0.9% year-over-year to $365.58 million in the fiscal first quarter ended March 31. Cash and cash equivalents balance rose 26.6% from the prior-year period to $648.76 million. Net income for the period and EPS stood at $90.80 million and $0.08, respectively.
Street EPS estimate for the quarter ending June 2022 of $0.06 indicates a 20% year-over-year improvement. Likewise, Street revenue estimate of $376.79 million for the same quarter reflects a rise of 3.8% from the prior-year quarter.
BTG’s stock has gained 6.1% year-to-date and 3.2% over the past five days to close yesterday’s trading session at $4.17. BTG also has a 3.79% dividend yield.
It’s no surprise that BTG has an overall B rating, which translates to Buy in our POWR Rating system.
BTG has a Sentiment grade of A, consistent with its favorable analyst expectations. Moreover, its EPS is expected to increase 20% per annum over the next five years. The stock also has a B grade for Quality. This is justified by its trailing 12-month gross profit margin and EBITDA margin of 64.58% and 61.36%, which are 102.7% and 187.7% higher than the industry averages of 31.85% and 21.33%.
It is ranked #5 in the Miners – Gold industry. To see the additional POWR Ratings for Growth, Value, Momentum, and Stability for BTG, click here.
Centerra Gold Inc. (CGAU)
CGAU operates as a gold mining company that acquires, explores, and develops gold and copper properties in North America and globally. The company’s principal project includes the 100% owned Mount Milligan gold-copper mine, located in British Columbia. It is headquartered in Toronto, Canada.
For the fiscal first quarter ended March 31, CGAU’s revenue increased 30.5% to $295.22 million. Adjusted net earnings from continuing operations and adjusted net earnings from continuing operations per common share came in at $56.40 million and $0.19, up 100% and 90% from the prior-year quarter.
The consensus EPS estimate of $0.98 for the fiscal year 2022 indicates a 27.3% year-over-year increase. Likewise, the consensus revenue estimate for the same year of $1.21 billion reflects a rise of 33.9% from the prior year.
The stock has gained 7.2% year-to-date and 13.8% over the past six months to close yesterday’s trading session at $8.23. CGAU also has a 2.62% dividend yield.
This promising prospect is reflected in CGAU’s POWR Ratings. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
CGAU has a Quality grade of A. This is justified by its trailing 12-month levered FCF margin and EBIT margin of 44.56% and 28.03%, which are 675.5% and 96.5% higher than their respective industry averages of 5.75% and 14.27%. The stock has a B grade for Growth in sync with its EBIT and EPS growth at a CAGR of 28.5% and 40.8% over the past three years. CGAU also has a Value grade of B, consistent with its forward Price/Book multiple of 0.88, which is 59.3% lower than the industry average of 2.15.
It is ranked #1 in the same industry. In addition to the POWR Rating grades we’ve stated, one can see CGAU ratings for Momentum, Stability, and Sentiment here.
AUY shares were trading at $5.39 per share on Tuesday afternoon, up $0.19 (+3.65%). Year-to-date, AUY has gained 29.12%, versus a -16.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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