While inflation has cooled significantly over the past few months, it is still well above the Fed’s target of 2%. The growing probability of further interest rate hikes renews the fears of a recession. Amid an economic downturn, investors could turn to stable investments such as gold for its hedging properties.
Gold can help investors diversify their portfolios by providing stable returns and steady value despite market fluctuations. Amid this, quality gold stocks Alamos Gold Inc. (AGI), Eldorado Gold Corporation (EGO), and Centamin plc (CELTF) could be ideal investments this month.
Before diving deeper into the fundamentals of these stocks, let’s discuss why investing in gold stocks could be wise now.
After ten consecutive interest rate increases, the Federal Reserve officials announced a pause last month, leaving rates between 5%-5.25%, but signaled that additional rate hikes are likely this year. The Labor Department reported that the Consumer Price Index (CPI) rose just by 0.1% in May, bringing the annual rate down to 4% from 4.9% in April.
However, core inflation, which provides a better measure of overall inflation, increased by 0.4% for the month and remained 5.3% higher than the previous year. Although price increases have moderated, inflation remains above the Fed’s 2% goal. Futures markets are predicting an approximately 89% chance of a rate hike at the central bank’s July meeting, according to the CME FedWatch Tool.
With the central bank expected to continue hiking interest rates in response to still-elevated inflation, the economy may be edging toward a recession. Gold is historically considered a “safe-haven” asset known for maintaining its value during weak economic environments.
When an economy is in turmoil, investors are more likely to lose faith in more speculative investments, including stocks, bonds, and real estate, and turn to gold to protect their wealth, causing strong demand and increased prices. Gold has outperformed global equities and fixed-income indices over the past 12 months.
Gold prices have consistently remained high earlier this year, peaking at nearly $2,048 in April 2023. While the price of gold has fluctuated in the last few weeks, it is still hovering around $1,910 per ounce.
Based on estimates by the World Gold Council, mine production increased 2% year-over-year to a record level of 856t for the first quarter of 2023. Gold recycling volumes grew by 5% year-over-year to 310.4t as the gold price increased. In addition, the first quarter saw a modest 8.1t added to the global hedge book owing to higher gold prices.
The U.S. Global GO GOLD and Precious Metal Miners ETF’s (GOAU) 22.2% returns over the past nine months illustrate investors’ interest in gold stocks.
As gold can weather many economic storms, from inflation to recession, investors could consider buying fundamentally strong gold stocks AGI, EGO, and CELTF this month for steady returns.
Let’s take a closer look at the fundamentals of these stocks.
Alamos Gold Inc. (AGI)
Headquartered in Toronto, Canada, AGI engages in the acquisition, exploration, development, and extraction of precious metals in Canada and Mexico. It mainly explores for gold and silver deposits. The company holds 100% interest in the Young-Davidson mine and Island Gold mine located in Ontario, Canada, and Mulatos mine located in Sonora, Mexico.
On May 24, AGI completed the previously announced acquisition of all the issued and outstanding common shares of Manitou Gold Inc. (MTU). A Final Order was granted by the Ontario Superior Court of Justice on May 19, approving the Plan of Arrangement under which the transaction was implemented.
Through this acquisition, the company is expected to more than triple its land package around the Island Gold Mine, adding considerable exploration potential in a relatively underexplored segment of the Michipicoten Greenstone Belt.
AGI’s trailing-12-month gross profit margin and EBITDA margin of 49.66% and 41.90% are 74.9% and 142.8% higher than the industry averages of 28.39% and 17.26%, respectively. Also, the stock’s trailing-12-month net income margin of 10.58% is 48.6% higher than the industry average of 7.12%.
For the first quarter that ended March 31, 2023, AGI produced 128,400 ounces of gold, marking a 29.8% increase from the first quarter of 2022, driven by a significant increase in production from the Mulatos District. Its Mulatos District gold production rose 124.4% year-over-year to 50,500 ounces.
Furthermore, AGI’s operating revenues increased 36.4% year-over-year to $251.50 million. The company’s adjusted net earnings grew 152.2% from the year-ago value to $45.40 million, and its adjusted earnings per share rose 140% year-over-year to $0.12.
Analysts expect AGI’s revenue for the fiscal year (ending December 2023) to grow 18.6% year-over-year to $973.85 million. The company’s EPS for the current year is expected to increase 70.5% year-over-year to $0.48. Moreover, AGI surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Shares of AGI have gained 11.5% year-to-date and 63.4% over the past year to close its last trading session at $11.55.
AGI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
AGI has an A grade for Growth and a B for Quality. Within the Miners - Gold industry, it is ranked #9 of 39 stocks.
To see additional grades for Value, Stability, Sentiment, and Momentum for AGI, click here.
Eldorado Gold Corporation (EGO)
EGO engages in the mining, exploration, development, and sale of mineral products, mainly in Turkey, Canada, Greece, and Romania. The company primarily produces gold, silver, lead, and zinc. It is headquartered in Vancouver, Canada.
On May 30, EGO announced the closing of C$81.50 million ($61.17 million) strategic investment in Eldorado by the European Bank for Reconstruction and Development (EBRD) and concurrent C$135 million ($101.33 million) bought deal financing.
“Proceeds from this financing will strengthen the Company’s balance sheet and is expected to provide additional optionality across our global portfolio,” said George Burns, EGO’s President and CEO.
EGO’s trailing-12-month gross profit margin of 45.83% is 61.4% higher than the 28.39% industry average. Likewise, the stock’s trailing-12-month net income margin of 37.40% is 116.7% higher than the industry average of 17.26%.
EGO’s revenue increased 17.8% year-over-year to $229.40 million in the first quarter that ended March 31, 2023. Its net earnings for the period were $21.30 million or $.12 per share, compared to a loss of $317.60 million or $1.74 per share in the previous year’s quarter. The company’s adjusted EBITDA grew 66.1% from the prior-year period to $102.50 million.
In addition, cash inflow from operating activities before changes in working capital was $94.50 million, up 91.3% year-over-year, primarily due to higher gold production and sales volumes. The company’s gold production increased 21% year-over-year to 112,533 ounces and its gold sales grew 16% from the year-ago value to 109,817 ounces.
Analysts expect EGO’s revenue and EPS to increase 26.5% and 45% year-over-year to $269.97 million and $0.12 for the second quarter ended June 2023, respectively. The consensus revenue estimate of $1.06 billion for the fiscal year 2023 reflects a 21.1% year-over-year improvement. Also, the consensus EPS estimate of $0.44 for the ongoing year indicates a 776.7% rise year-over-year.
EGO’s stock has gained 10.2% over the past six months and 69.2% over the past year to close the last trading session at $9.81.
EGO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
EGO has a B grade for Quality and Growth. In the 39-stock Miners - Gold industry, it is ranked #11.
Beyond what we stated above, we also have EGO’s ratings for Stability, Sentiment, Value, and Momentum. Get all EGO ratings here.
Centamin plc (CELTF)
Based in Saint Helier, Jersey, CELTF engages in the exploration, mining, and development of precious metals in Egypt, Burkina Faso, Côte d’Ivoire, Jersey, the United Kingdom, and Australia. It explores gold deposits, and its principal asset is the Sukari Gold Mine project, which covers an area of approximately 160 square kilometers located in the Eastern Desert of Egypt.
CELTF’s 30.92% trailing-12-month gross profit margin is 8.9% higher than the 28.39% industry average. The stock’s trailing-12-month EBITDA margin of 39.46% is 128.6% higher than the industry average of 17.26%. In addition, its 9.19% trailing-12-month net income margin is 29.1% higher than the industry average of 7.12%.
During the first quarter that ended March 31, 2023, CELTF’s revenue increased 18% year-over-year to $205.20 million. The company’s realized gold price grew marginally year-over-year to $1,902/oz, and its gold sold increased 16% year-over-year to 107,661 oz. Its free cash flow rose 138% from the year-ago value to $8.10 million.
Analysts expect CELTF’s revenue to increase 11.6% from the previous year to $879.77 million for the fiscal year ending December 2023. The stock has gained 23.9% over the past year to close the last trading session at $1.16.
CELTF’s POWR Ratings reflect bright growth prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
CELTF has a B grade for Value and Stability. The stock is ranked #11 within the same industry.
In addition to the POWR Ratings stated above, we have also given CELTF grades for Growth, Momentum, and Sentiment. Get all CELTF ratings here.
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AGI shares were unchanged in premarket trading Friday. Year-to-date, AGI has gained 14.74%, versus a 15.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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