The more we keep our eye on the gold sector, the more we see the top firms on Wall Street that we cover revising price targets higher. What is happening is that after a year of bearishness, analysts are becoming positive on gold again. The consensus is building that gold has found its floor.
A new research report from the Precious Metal team at Credit Suisse points out that the plunge in gold prices in 2013 forced the top mining companies to evaluate growth options. They are also focused on every imaginable cost reduction. While ETF holdings of gold are down, physical demand from China and India is still very strong, and made up 56% of 2013 total demand.
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Credit Suisse also note that gold has rallied 8% year-to-date, and it echoed the sentiment that gold could have a lot of room to go even higher. We have highlighted the top recommendations from the Credit Suisse analysts with the stocks that the firm rates as Outperform.
As we saw on Thursday, after the Malaysian flight that was shot down by a surface-to-air missile over Ukraine, gold prices can quickly spike higher. In addition, Credit Suisse is extremely bullish on the continued gold demand from overseas and central banks looking to hedge currency and inflation risks. As we have suggested before, investors may want to carve out a small 5% allocation in their portfolios for a gold position.
If this report sounds like a bit of an echo, we would point out other very recent rival analyst calls in support as well:
- J.P. Morgan issued its fresh gold mining stock picks.
- RBC put out a bullish gold mining stock list.
- World Gold Council sees improved prospects.
- Sterne Agee forecast a rise of close to $1,500 for gold and issued new gold stock picks as well.
Agnico Eagle Mines Ltd. (AEM) is the top Credit Suisse price for short- and longer-term investors. The company recently completed its joint acquisition of Canada's Osisko Mining and its Canadian Malartic mine, which the company purchased together with Yamana Gold. The Osisko deal guided investors on both companies in recent months, so any positive news on the performance of the Malartic mine will have an immediate effect on valuation.
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The Credit Suisse analysts point out that Agnico Eagle was the only mining company to raise its guidance following first-quarter results. Investors are paid a 0.9% dividend. Credit Suisse ups its price target to $50 from $48. The Thomson/First Call consensus price target is $39.63. The stock closed Thursday at $41.63 a share.
Eldorado Gold Corp. (EGO) is another of the top picks at Credit Suisse. The company engages in the exploration, development, mining and production of gold properties in Turkey, China, Greece, Brazil and Romania. The company also explores for iron, silver, lead, zinc and copper ores.
The Credit Suisse analysts point out that the company is a consistent, low-cost operator with solid valuation upside to its net asset value. They also cite upside potential could be tied to pending permits in Greece and China. Eldorado Gold investors are paid a small 0.3% dividend. Credit Suisse raises its price target to $10 from $9, while the consensus target is $8.65. Shares closed Thursday at $7.55.
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Kinross Gold Corp. (KGC) is a top small cap name for investors looking for gold exposure and the ability to buy more shares. It plans to severely chop capital spending by as much as $555 million this year. With problematic cash flow issues, this makes good sense. Kinross also may be a nice acquisition for a company looking to increase reserves. Plus, the company has very appealing valuation ratios and a significant scale of operations, allowing it to boost production as the gold price appreciates. The Credit Suisse price target is $5.50, and the consensus target is $5.36. Shares closed Thursday at $4.22.
Yamana Gold Inc. (AUY) rounds out the top four names to buy at Credit Suisse. The company has been known to use extremely conservative assumptions in declaring its reserves, and as a result, it downgraded very few ounces last year. In fact, Yamana's reserves were essentially flat year-over-year. Furthermore, the company's resources -- a category of in-ground gold that is less restrictive -- grew meaningfully year-over-year.
The Credit Suisse team feels that Yamana is at an inflection point after two disappointing years. They point out that historically the company has much stronger second half of the year production, so the second quarter could be a jump ball for investors. Shareholders are paid a 1.7% dividend. Credit Suisse has an $11.50 price target, and the consensus price target is posted at $10.77. Yamana closed Thursday at $8.40.