Most investors typically value precious metals as safe havens in times of an economic downturn. Due to the novel coronavirus-led market slowdown, several investors have turned to precious metals in protecting their investments.
For example, gold prices have risen over 27% in the past year compared to 19% growth in the S&P 500 index.
However, these companies tend to different sensitivities based on their businesses. The demand for industrial metals tends to fluctuate with the global economy. Hence, the current recession has slowed down demand for companies focusing on the production of industrial metals.
On the flip side, the value of precious metals is inversely linked to the economy. The evidence is that in the first half of the year, gold and silver prices shot up to multiyear highs.
Let’s look at three of the best precious metals stock to buy:
Precious Metals To Buy: Barrick Gold (GOLD)
Barrick Gold is one of the more established and diversified gold miners. It is primarily involved in the production and sale of precious metals, mainly copper and gold.
Additionally, it is also involved in related activities such as mine development and exploration. The Canada-based company has 16 operating sites in 13 countries. A 12-month return relative to the S&P is over 47% for GOLD stock.
The company is on track to meet its production targets for the year, despite the crippling effects. Gold production is at 2.4 million ounces, roughly at the mid-point of its 5-million-ounce guidance for the year. Adjusted net earnings per share were at 23 cents, which is up 44% sequentially. Moreover, the quarterly dividend increased by 14% during the quarter.
The balance sheet position is relatively strong, with low debt and a robust cash position. Moreover, it has $3 billion in free cash flows with no significant maturities until 2033. Therefore, GOLD is one of the hottest precious metals stocks going in the sector today.
Newmont Corporation (NEM)
Newmont is the world’s largest gold producer with the industry’s best asset portfolio. Its diversified product base includes precious metals such as gold, copper, silver, zinc and lead.
The U.S.-based gold miner has its operational bases in the United States, Australia, Peru, Ghana and Suriname. Despite the impact of Covid-19, the 12-month return relative to the S&P is roughly 50% for NEM stock.
The second quarter was rough on the company mainly due to five of its operations being closed for maintenance. As a result, attributable gold production was down roughly 21% year-over-year to 1.3 million ounces.
However, the average realized price improved substantially by 31%. With gold prices above $2000 per ounce, third-quarter results should be significantly better with higher margins. Nevertheless, Adjusted EPS was down 12% sequentially.
Newmont aims to cut costs and becoming a leaner company in the future. Hence, capital expenditures declined by $48 million to $280 million. Additionally, the company has generated roughly $1 billion in free cash flows in the first half of the year.
It is also the industry leader in terms of dividend yield at 1.45%, paying an annual dividend of $1 per share.
Wheaton Precious Metals (WPM)
Wheaton Precious Metals is one of the largest precious metal’s royalties and streaming companies in the world. It currently has streaming agreements with nine development stage projects and 20 mines. It is one of the best-performing stocks in the sector as WPM stock’s 12-month return is roughly 95%.
The company had a stellar second quarter despite the struggles of many of its competitors in the sector. Revenues were up 30.9% over the prior-year period, pushing net income to $105.8 million. It had posted a net loss of $124.7 million in the same period last year. Its mining partners produced 156,188 gold-equivalent ounces in the second quarter, a 5.5% increase from last year.
The company’s balance sheet position is healthy, with a net debt-equity ratio of only 0.09. In the second quarter alone, it reduced its debt by $80 million.
Additionally, its free cash flow of $151.8 million is more than enough to cover its dividend costs. Wheaton has a dividend payout ratio of 0.48, which is significantly better than its competitors mentioned in the article.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.