In last week's commentary we highlighted some of the favorite gold mining stocks of the leading newsletter advisors. Here we continue with additional Moneyshow.com contributors who discuss some favorite royalty streaming gold stocks, gold ETFs and both junior and senior gold miners.
Adrian Day, Global Analyst
Osisko Gold Royalties (OR) , a gold royalty streaming company, fell sharply following its fourth-quarter results. Three factors contributed to this: higher general & administrative costs; a reduction in 2018 guidance; and most importantly an impairment charge on the Eleonore royalty it owns.
Meanwhile, there were plenty of good things about the results, including record gold ounces and revenues. The foundational royalty on Canadian Malartic set a new record while exploration is underway at brownfields deposits.
Osisko Gold is paying C$98 million for a 5% royalty on Victoria Gold's shovel-ready Eagle Gold Project in the Yukon, Canada and buying another $50 million of stock in the company, taking its interest to 16%. Other nearby deposits are included in the royalty.
The decline in Osisko's stock price is overdone, and the valuation discount too great. The stock is trading on a price-to-NAV basis at a discount of 36% to its royalty peers. Separately, Osisko said it had repurchased over 500,000 shares through its ongoing buy-back program. We agree with management: Osisko is a Strong Buy at the current level.
Franco-Nevada (FNV) saw lower-than-expected production; the royalty streaming company also estimated 2018 production below what many analysts had projected. It is not counting any production from its next major revenue generator, Cobre Panama, this year. Sales will improve as much as 20%, however, into 2019, as that mine comes onstream.
Over 90% of its revenue comes from precious metals, and the company has indicated its next major acquisitions could be in the oil and gas sector, or perhaps in base metals. At the end of the year, Franco had over $500 million in cash with no debt, and $1.1 billion available on its line of credit.
Franco is widely held in generalist funds, so when the broad market drops, it can be hit by selling that does not affect most other gold stocks. With a volatile market and with lower guidance for the year, the next few months could see Franco stocks continue to lag, presenting a great buying opportunity.
John Persinos, Personal Finance
SPDR Gold Trust (GLD) is an ETF that seeks to reflect the performance of the price of gold bullion. It is the most popular bullion ETF and the most liquid physically-backed gold offering available.
Launched in 2004, this was the first gold ETF in the U.S. The ETF is a logical inflation hedge now. Investors worry that economic growth will overheat. Unemployment is at 4.1%, a 17-year low. The job market is tight; wage growth is accelerating.
The $1.5 trillion tax cut kicks in during an expansion. The tax overhaul also boosts the federal deficit. Meanwhile, global growth is "synchronized," which means all regions are firing on all cylinders. This combined stimulus is a recipe for inflation.
At the same time, political risk is creeping back into the equation and geopolitical risk is growing as well. These conditions are manna for the yellow metal, the classic hedge against inflation and crises.
But here's what many analysts are missing: Gold prices are also influenced by cultural and holiday celebrations in China and India, such as the Chinese New Year and Diwali. Each country buys more gold than the U.S., Europe and the Middle East combined.
Individual Chinese investors are turning to gold not just for ornamental purposes but also as a storehouse of value in uncertain times. Chinese demand should prove a tailwind for gold prices in 2018.
We expect gold prices to spike in 2018. The time to buy is now, before panic-buying bids up the price of gold investments. The investment rule of thumb is for an allocation of 5%-10% in either gold mining stocks, ETFs or the physical bullion itself. We prefer the ease and safety of ETFs.
Gavin Graham, Internet Wealth Builder
Many analysts and observers are so taken with bitcoin and other so-called cryptocurrencies that they liken it to a replacement for gold. But is it really?
Unlike bitcoin, which isn't even a decade old yet, gold has been a store of value for more than 4,000 years. As observers are fond of pointing out, almost all the gold that's ever been mined is still around, as it doesn't rust, dissolve or decompose. Perhaps most importantly, gold is no one's obligation and no government has the ability to control its supply.
In my view, it makes sense to stick with gold, the original, historical, proven store of value. Its supply cannot suddenly change, and it is supported by central banks, which still keep a large part of their reserves in gold.
For investors looking for exposure in the gold sector, Agnico Eagle Mines (AEM) is a senior Canadian gold mining company that operates eight mines in Canada, Finland and Mexico.
Agnico remains the gold miner with the best-regarded management, growing production in politically safe jurisdictions, and a willingness to make opportunistic purchases, such as the Malartic exploration assets, taking advantage of Yamana Gold's need for cash.
Goldcorp (GG) is the largest Canadian gold miner by market capitalization. Its portfolio includes mines in Canada, the U.S. and Latin America. The stock has lagged the broader market for gold stocks, down 15% in the last year, despite steadily improving results.
Gold production is forecast to rise 20%, to 3 million ounces by 2021, while costs are expected to fall to $700 per ounce and gold reserves to rise to 60 million ounces. It's still the cheapest major miner. Buy.
Franco-Nevada (FNV) is a precious metals royalty and streaming company with a large and diversified portfolio of cash-flow producing assets in Canada, the U.S., Australia, Africa and Latin America.
The company pays a quarterly dividend of $0.23 per share ($0.92 a year), for a yield of 1.2% at recent prices. Franco Nevada continues to thrive by growing its portfolio of first-class projects, diversified both geographically and by type of metal or commodity. Buy.
Frank Holmes, US Global Investors' Frank Talk
We pay close attention to the macro drivers moving the yellow metal, like government policy and cultural affinity spurring demand globally. We also monitor the micro drivers, like company management and quant factors that make one gold stock superior to the next.
Gold's qualities make it one of the most coveted metals in the world and a popular gift in the form of jewelry -- this is what I call the Love Trade. From the beginning of the Indian wedding season in September until Chinese New Year in February, the price of gold tends to rise due to higher demand from the two biggest consumers of gold, China and India.
On the other hand is the Fear Trade, driven by negative real interest rates and the fear of poor government or central bank policies that could result in currency devaluation or inflation. This fear triggers people to buy gold as a hedge against possible negative returns in other asset classes, which in turn, pushes the gold price higher.
We believe gold is an essential part of a portfolio due to its history as a protector against inflation. I've always recommended a 10% weighting in the metal, 5% in gold bullion or jewelry, and 5% in gold stocks, mutual funds and ETFs.
In fact, current economic conditions make an even greater case for gold. The stock market is still on a historic bull run, and the tax reform bill is helping ratchet up share prices. It's important to remember that the precious metal has historically shared a low-to-negative correlation with equities.
Gold has also performed competitively against many asset classes over the past few decades. This makes the metal, we believe, an appealing diversifier in the event of a correction in the capital markets or an end to the bull market.
U.S. Global has owned Klondex Mines (KLDX) for nearly nine years and we have seen this team put together an attractive package of assets in Nevada, transforming the company into a 200,000 ounce producer.
The stock came under pressure last year as the company expanded operations and bought the True North Mine out of receivership as well as the Hollister Mine from private interest.
It ended up stretched too thin with the challenges of changing the work culture at True North and Klondex has held off processing most of the Hollister ore due to gold recoveries only in the 80% range, where metallurgical testing indicated it should be closer to 85%.
We believe they will get there. The stock has really been punished for missing 2017 guidance, but at this price level, with the street now taking a "show me" attitude before rerating it, now is the time to buy.
Wesdome (WDO.TO; (WDOFF) ) is at an exciting point right now. In August 2016, Wesdome released the first set of really game changing results from the Kiena Deep Exploration program, which has the potential to allow the mine to restart.
Wesdome has now ramped down to have better access in executing a new drill program at Kiena. The company has largely been undercapitalized, but with Charlie Page coming on the board a few years ago, a lot of credibility has been added to the Wesdome story.
Wesdome is one of the few remaining Canadian junior miners that could be a takeover target, particularly if Kiena can be brought back into production.