Raymond James analysts Phil Russo and Chris Thompson are sharing their top nine gold stocks, expected third-quarter earnings per share and their thoughts on the gold price in an Oct. 25 research note.
“The current environment supports a positive backdrop for continued momentum in precious metals, driven by the uncertainty regarding a near-term interest rate hike in the U.S., and other macroeconomic pressures, which we believe will transcend into 2017,” Russo and Thompson write.
While traditionally the gold price has fallen with rising interest rates, the analysts note that gold increased 10% in the year after the previous rate hikes in 1999 and 2004, indicating gold’s ability to “coexist with a rising real rate backdrop.”
Gold and gold equities have had a good year so far in 2016. Spot gold prices spiked in the year’s first half, touching a US$1,367 per oz. high in early July — up 29% from US$1,061 per oz. in 2015 — before finishing September at US$1,315.90.
Given the gains and corrections in the sector and with gold presently trading at more than US$1,250 per oz., Russo and Thompson suggest investors should be extra careful when picking which gold equities can outperform into 2017. They describe the recent pullback in share prices as an opportunity to buy or increase positions in some of the best companies.
Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Yamana Gold (TSX: YRI; NYSE: AUY) are the analysts’ preferred senior gold stocks. Russo has upgraded Agnico to “outperform” from “market perform,” citing decent operational results year-to-date and the recent share price decline.
Both companies could produce strong third-quarter earnings per share, beating the average analysts’ US19¢ estimate for Agnico and US4¢ for Yamana.
Based on their Oct. 24 closing price on the New York Stock Exchange and six- to 12-month target price, Yamana has an 88% target return, and Agnico has 14%.
The analysts’ top intermediate gold names are Alamos Gold (TSX: AGI; NYSE: AGI), B2Gold (TSX: BTO; NYSE-MKT: BTG), Detour Gold (TSX: DGC), Eldorado Gold (TSX: ELD; NYSE: EGO) and OceanaGold (TSX: OGC).
On Oct. 13, B2Gold reported record gold production, sales and revenue in the third quarter. It generated US$193 million on sales of 145,029 oz. gold at an average US$1,331 per oz. gold. Consolidated gold production was 146,768 oz., up 18% from a year ago.
Out of the five firms, the analysts forecast OceanaGold will beat its average analysts’ earnings estimate of US4¢ per share in the September quarter.
Eldorado has the highest estimated target return of 96%, based on its Oct. 24 close of US$3.57 and US$7 target price.
Asanko Gold (TSX: AKG; NYSE-MKT: AKG) and Roxgold (TSXV: ROG) are the analysts’ top junior gold picks.
In mid-October, Asanko published strong third-quarter production results from the Asanko gold mine’s first phase in Ghana. It expects to make between 106,000 and 111,000 oz. gold in the second half, beating its recently upgraded guidance.
Asanko has a 29% estimated target return, compared to Roxgold’s 51%.