Earlier this week, the Federal Reserve maintained its stance on interest rates, refraining from cuts as it combats the persistent climb of inflation. Chair Jerome Powell emphasized the ongoing struggle to bring inflation back toward 2%, casting doubt on the path ahead for policymakers.
With inflation on the rise, gold shines as an ideal investment, known to safeguard against inflation and maintain its value during economic uncertainty. June-dated gold futures (GCM24) recently peaked at a new record high above $2,448 an ounce, with spot gold gaining 14.5% over the past year.
Despite gold's blazing rally, gold miners have struggled to keep up, grappling with challenges and rising costs. According to UBS (UBS) U.S. Equity Derivatives Research Head Maxwell Grinacoff, the decoupling between gold's surge and gold mining stocks has left the group trading at a historical discount, and investors should be overweight these names.
Barrick Gold Corporation (GOLD) and AngloGold Ashanti plc (AU) are among the investment bank’s preferred gold mining stocks, and have also earned a consensus “Buy” rating from the rest of Wall Street.
Gold Mining Stock #1: Barrick Gold Corporation
With a market cap of over $28.7 billion, Canada-based Barrick Gold Corporation (GOLD) is an industry-leading gold and copper (HGN24) producer. In addition to an extensive portfolio that encompasses key gold and copper regions globally, the company is also engaged in exploring and trading in silver (SIN24) and energy materials.
Over the past three months, Barrick Gold’s shares have climbed roughly 7.9%.
Barrick Gold is highly committed to returning shareholder value. The company declared a dividend of $0.10 per share, payable on June 17. Its annualized dividend of $0.50 translates to an attractive 3.06% dividend yield. Furthermore, the company maintains a conservative dividend payout ratio of 47.9%, which allows sufficient flexibility for growth initiatives and potential dividend enhancements in the future.
Apart from boasting an enticing dividend yield, the stock appears quite affordable. The stock is priced at 18.29 times forward earnings and 2.56 times sales, lower than its own five-year averages.
On May 1, Barrick Gold reported its fiscal Q1 earnings results, which surpassed Wall Street’s predictions on both the top and bottom lines. Its revenue of $2.8 billion increased 3.9% annually, exceeding Wall Street estimates marginally. Its adjusted EPS of $0.19 improved 35.7% year over year, also topping analyst estimates. During the quarter, the company's gold production reached 940,000 ounces.
For fiscal 2024, the company anticipates its total gold production to range between 3.9 million ounces and 4.3 million ounces. Moreover, during the same period, management foresees capital expenditures to range somewhere between $2.5 billion and $2.9 billion.
By comparison, analysts tracking Barrick Gold expect the company’s profit to reach $0.95 per share in fiscal 2024, up 13.1% year over year, and grow another 35.8% to $1.29 in fiscal 2025.
Barrick Gold stock has a consensus “Strong Buy” rating. Out of the 17 analysts offering recommendations for the stock, 11 recommend a “Strong Buy,” two suggest “Moderate Buy,” and the remaining four analysts give a “Hold” rating.
The average analyst price target of $21.80 indicates a potential upside of 31.2% from current price levels. However, the Street-high price target of $26.15 suggests a remarkable 57.4% upside potential.
Gold Mining Stock #2: AngloGold Ashanti
With a market cap of over $9.8 billion, Colorado-based AngloGold Ashanti plc (AU) operates as a gold miner across Africa, Australia, and the Americas. The company's primary focus lies in gold exploration and production, alongside the extraction of silver and the production of sulphuric acid as secondary outputs.
Shares of AngloGold have surged 30.3% over the past six months and 23% on a YTD basis.
AngloGold’s annualized dividend of $0.22 translates to a 0.93% dividend yield. Also, the company maintains a healthy dividend payout ratio of 36.7%.
In terms of valuation, the stock is trading at 8.73 times forward earnings, lower than the gold mining industry average and its five-year average. Moreover, the stock is priced at 2.10 times sales, significantly lower than its five-year average of 16.62x.
For the second half of fiscal 2023, the company reported an adjusted EBITDA of $744 million on Mar. 19, up 14.5% sequentially. Meanwhile, gold production in the second half surged approximately 15% compared to the first half of 2023, reaching 1.4 million ounces.
Looking ahead to fiscal 2024, the company has revised its guidance upwards. Management now expects total gold production to range between 2.6 million ounces and 2.8 million ounces. Additionally, for fiscal 2025, total gold production is projected to be between 2.7 million ounces and 2.9 million ounces.
Analysts tracking AngloGold expect the company to report a profit of $2.84 per share in fiscal 2024, representing a significant year-over-year surge, and grow another 37% to $3.89 in fiscal 2025.
AngloGold stock has a consensus “Moderate Buy” rating. Out of the four analysts covering the stock, two recommend a “Strong Buy,” and the remaining two give a “Hold” rating.
The average analyst price target of $24.50 indicates a potential upside of 6.3% from the current price levels. However, the Street-high price target of $31, reiterated by JPMorgan (JPM) last month, suggests a notable 34.5% upside potential.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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