3 Gold Stocks to Shine This Earnings Season
After a nightmarish 2013, this year began on a positive note for gold with prices remaining steadily above $1,200 per ounce in the first quarter of 2014. Gold prices were close to the level of $1,400 per ounce in March as investors once again relied on the yellow metal as a safe haven asset. This was triggered by weak U.S. economic activity due to inclement weather, concerns over the Chinese economy and simmering geo-political tensions in Ukraine, which led investors to shun equities and seek a safe harbor.
This was in stark contrast to gold’s bearish run in 2013 as everything went against the once-coveted yellow metal – the Federal Reserve’s taper or no taper confusion, conflict in Syria and the U.S. government’s partial shutdown, and finally the taper call at year end. All these led to gold recording its worst annual performance in more than three decades. Gold lost 9% on Apr 12 – the biggest loss in one day, hit the nadir of $1,192 per ounce in June and ended 2013 at around $1,200 per ounce. The price drop resulted in a massive outflow in gold ETFs as investors lost confidence in gold as a safe bet and shifted to other investment options. On the contrary, demand for jewelry, gold bars and coins were at unprecedented levels, mainly driven by China and India.
As the first-quarter earnings season is currently underway, let’s have a look at how the gold companies are faring. The gold-mining industry comes under the broader Basic Materials sector. Of the mere 8.7% stocks in the sector having reported their numbers for the quarter, earnings increased 10.5%. Notably, the Basic Materials sector has an impressive beat ratio (percentage of companies coming out with positive surprises) of 100% so far.
It is too early to rejoice at the positive numbers taking into account that the major chunk of the companies are yet to report their results. In fact, earnings of the Basic Material sector is expected to dip 1.8% for the quarter. Though the start of the year will be dismal, the sector will witness an uptrend in the second quarter with expected growth of 17.8%. (For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.)
We have picked a handful of gold stocks that have the potential to beat earnings in their upcoming releases. An earnings beat will do wonders to investor confidence for these stocks, leading to rapid price appreciation.
How to Make a Choice?
With a number of industry players, picking the right stocks may appear to be a daunting task. However, the Zacks proprietary methodology makes it easier. One can narrow down the list with the potent combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Earnings ESP.
Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. It helps in determining stocks that have high chances of delivering earnings surprises in their next earnings announcement. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Here are three gold stocks that are likely to surprise this earnings season, as they have this compelling combination:
Agnico Eagle Mines Limited (AEM)
Toronto, Canada-based Agnico-Eagle Mines Limited has mining operations in Canada, Mexico and Finland and exploration activities in Canada, Europe, Latin America, and the United States. Its flagship property, the LaRonde mine in Quebec is one of Canada’s largest operating gold mines with estimated, proven and probable mineral reserves including approximately 3.9 million ounces of gold. Agnico Eagle Mines currently has a market capitalization of $4.95 billion.
This Zacks Rank #2 stock has delivered a year-to-date return of 8.18%, outperforming the S&P 500 return of 2.08%. The company has estimated long-term earnings growth of 7.7% and has delivered positive earnings surprises in the past 2 quarters. The Zacks Consensus Estimate for the first quarter is at 17 cents and Earnings ESP is +5.88%.
Agnico Eagle Mines’ joint agreement with Yamana Gold, Inc. (AUY) to acquire 100% of Osisko's shares is expected to be accretive to its earnings and will also improve its total cash cost and all-in sustaining cost profiles. The company will also gain access to Canadian Malartic, the largest producing gold mine in Canada, which has the potential to produce an average of roughly 600,000 gold ounces per year for 14 years. The company expects synergies from its other Abitibi operations. Moreover, the advanced Kirkland Lake project will enrich the company’s portfolio.
Agnico-Eagle maintains a solid exploration budget and is reinvesting in its assets to enhance the output. Moreover, the company’s revised life of mine plan is expected to yield significant free cash flows over the next several years.
- Agnico Eagle Mines is slated to report its first-quarter results after the market closes on May 1.
Eldorado Gold Corp. (EGO)
Headquartered in Vancouver, Canada Eldorado Gold is engaged in the exploration, discovery, development, production, and reclamation of gold properties in Brazil, China, Greece, Turkey, and Romania.
This Zacks Rank #3 stock has delivered a year-to-date return of 4.81%, also outperforming the S&P 500 return of 2.08%. The company with a market capitalization of $4.26 billion has an impressive long-term expected earnings growth rate of 19.80%. The Zacks Consensus Estimate for the first quarter is pegged at 5 cents with an Earnings ESP of +20.00%.
Eldorado Gold will benefit from cost-reduction initiatives and the deployment of capital resources for development projects that are expected to deliver near-term cash flows. This gold producer recently announced that it expects its Deva Gold SA Certej project in Romania to produce 135,000 ounces of gold and 800,000 ounces of silver per year. Eldorado Gold believes it can exploit other resources in the region and use Certej as a platform to build up more businesses in Romania and Eastern Europe.
- Eldorado Gold Corp will report its first-quarter results after the market closes on May 1.
Kinross Gold Corporation (KGC)
Ontario, Canada-based Kinross Gold is primarily involved in the exploration and operation of gold mines. With a market capitalization of $4.76 billion, it ranks among the top 10 gold mining companies in the world with a target production of two million ounces of gold annually. The company holds major assets in Canada, the United States and Russia.
This Zacks Rank #3 stock has a long-term estimated earnings growth rate of 10%. The Zacks Consensus Estimate for its first quarter is at 3 cents with an Earnings ESP of +33.33%. The company has delivered positive earnings surprises in 2 of the last 4 quarters.
Kinross is making steady progress in advancing projects that give it a strong growth profile among leading gold producers. We expect Kinross’ exploration projects and acquisitions to boost its top line in the long term. Kinross has world class gold deposit under its jurisdiction in the form of Tasiast. The company recently announced promising Tasiast expansion feasibility study results. The expanded project is expected to produce an average of 848,000 gold ounces annually for the first 5 years starting 2018 at cash costs of $501 per ounce and generate free cash flow of $2.2 billion during this time period. Estimated mineral reserves from this mine are expected to increase almost 50% to 9.6 million ounces in the same time frame.
- Kinross Gold will report its first-quarter results after the market closes on May 7.
What Lies Ahead?
The rally in gold prices in the first quarter was short lived as gold again fell into the quagmire of a bear market in April. Strong U.S. equities on the back of improving economic data dented the metal’s safe haven appeal yet again.
Gold is expected to see rough days ahead. Prices will eventually slide on the heels of better U.S. economic data, a stronger U.S. dollar and hopes of easing geopolitical tensions. However, the price could find support from continued strong demand from China as well as a relaxation in India’s import duties.
Read the analyst report on AEM
Read the analyst report on KGC
Read the analyst report on EGO
Read the analyst report on AUY
Zacks Investment Research
- Basic Materials Industry
- Commodity Markets
- Eldorado Gold
- Gold prices
- Agnico Eagle Mines