5 of the Best Gold Stocks to Invest In

Oct 7, 2020 05:31 AM ET
5 of the Best Gold Stocks to Invest In

Gold is a well-known asset that in the market. Most investors love it for its long track-record as a stable currency and hedge against inflation and risks. Gold’s price has soared from less than $35 in 1970s to a high of more than $2,000. That makes it one of the best-performing assets in the world. And with the supplies falling and with interest rates set to remain low for long, analysts believe that the price will continue rising. You can take advantage of this by investing in physical gold and gold stocks. In this report, we will look at 5 of the best gold stocks to invest in. 

Gold stocks vs physical gold

A common question is on whether it is better to invest in physical gold or gold stocks. There are benefits and disadvantages of investing in both. For example, gold stocks are known to pay a dividend, especially when gold prices rise. Physical gold does not pay such a dividend. However, at the same time, gold stocks have to spend a lot of money in exploration, which usually increases their debt. Gold itself does not have any debt. 

Barrick Gold (GOLD)

Barrick Gold is the biggest gold mining stock in the world. The company has a market capitalisation of more than $59 billion and annual revenue of more than $11 billion. It generates a net income of more than $4 billion. 

Barrick is best-known because of Warren Buffett, one of the best-known investors in our time. His Berkshire Hathaway Corporation owns more than 21 million shares in the company. At the present share price, the holding is worth more than $567 million. 

Barrick Gold has grown both organically and through acquisitions over the years. It has acquired companies like Acacia Mining and RandGold in transactions worth more than $7 billion. 

The company has mines in countries like Tanzania, Mali, Democratic Republic of Congo, Papua Guinea, and Dominican Republic.

There are several reasons why investing in Barrick Gold makes sense. First, the firm has a strong balance sheet, made up of more than $3.7 billion of cash and $5.7 billion in long-term debt. Fortunately, the firm has taken measures to reduce this debt load. Second, it is reasonably valued  at a 11x earnings multiple. Third, Barrick has better margins than its peers. Finally, it has a long record of paying dividends, which is backed by a low payout ratio of ~26%.

Newmont Corporation

Newmont Corporation is a firm that has been associated with Barrick Gold. In 2019, Barrick even proposed acquiring the Canadian miner. While the deal did not work out, the two firms formed a joint venture. 

Newmont has a market cap of more than $49 billion and annual revenue of more than $9 billion. It has also grown through acquisitions, which helps it to increase its scale. The most recent acquisition was that of Goldcorp, in a deal that was valued at more than $10 billion.

Newmont has mining operations in the United States, Australia, Ghana, and Peru among others. This scale has seen the company produce more than 6 million ounces of gold every year. 

Newmont is an ideal gold stock to own for several reasons. First, the company is well-known for the superior returns it offers its investors. In fact, as shown below, the company offers more returns through dividends and buybacks than its closest peers combined. 

Newmont Corporation  

Second, Newmont’s business is relatively diversified. Indeed, its most recent presentation, the company said that it expects to increase production in most countries that it operates in. 37% of its gold reserves are in North America while 32% are in South America. Third, the firm is a free cash flow machine that generates about $400 million in FCF for every $100 increase in gold price.

Franco-Nevada Corporation (FNV)

Franco-Nevada is the third-biggest gold stock in the world. The firm has a market cap of more than $26 billion and annual revenue of more than $980 million. The company has more than $132 million in cash and no debt. 

Franco-Nevada is not similar to Barrick Gold and Newmont. That is because unlike these firms, it does not own or explore any gold mines. Instead, it owns gold mining assets across the world that give it revenue in form of streaming and royalties. As a result, the model provides it with relatively low risks and high margins.

There are several other reasons why Franco-Nevada is a good investment. First, as shown in the chart below, the company has a long track record of performance. If it did before, it can do it again. Second, the firm has no debt, which means that it can easily go to the market and borrow at low interest rates. Third, it has an attractive dividend yield that is backed by a reasonably low dividend yield. 

Franco-Nevada has a long history of strong performance

Franco-Nevada has a long history of strong performance

Kinross Gold (KGC)

Kinross Gold is a relatively small-sized gold mining company that is headquartered in Canada. The firm has a market cap of more than $11 billion and annual revenue of more than $3.4 billion. The firm has an annual revenue of more than $400 million. 

Kinross has a diversified group of assets spread across four continents. 56% of its gold mining comes from North and South America while 23% comes from West Africa. The rest comes from Russia. In 2019, the company mined more than 2.76 million ounces of gold.

Kinross Gold is an ideal investment because of its geographical diversification, strong cash position, and the strength of its balance sheet. The firm has more than $2.3 billion in cash, which is a substantial when you consider its market cap of more than $11 billion. As a result, all rating agencies have given the firm an investment-grade rating. Also, it is rapidly increasing its production. It expects its annual production will reach 2.9 million ounces in 2023.

Kinross is a diversified company

Kinross is a diversified company

Sprott (SII)

Sprott is not a gold miner. Instead, it is one of the largest gold-focused investment firms in the world. It offers asset management, resource financing, and wealth management. In asset management, it runs some of the fastest-growing gold ETFs such as the Sprott Physical Gold and Silver Trust. In resource financing, the firm provides financing to the leading gold and silver miners. 

Finally, on wealth management, it offers investment solutions through Sprott USA and Sprott Capital Partners. It has more than 200K global investors and more than $17 billion in assets under management. Sprott has a market cap of more than 878 million

Sprott funds

Sprott funds

Final thoughts

Gold stocks offer investors an important opportunity to make money from gold indirectly. In most cases, the stocks do well when the price of gold rises. From a historical and fundamental view, this trend is likely to continue into the future with central banks leaving interest rates at historic lows. Therefore, we recommend that you invest in gold directly and also through these assets and ETFs.


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