Some of the major headlines in 2020 — starting with the U.S-Iran tensions, the coronavirus outbreak in China which soon took the shape of a pandemic, strained U.S.-China relations, and civil unrest in the Unites States — have all fueled a 14.5% year-to-date rally in gold prices. Gold prices are currently around $1,750 an ounce — at a seven-year high. Gold has been, in fact, outperforming most major asset classes this year.
Gold is seen as a safe-haven asset during times of political and economic uncertainty. So far this year, the global uncertainty and financial market volatility stemming from the coronavirus crisis has led investors flocking to gold. Rising animosity between the United States and China over Hong Kong has spurred the safe-haven demand for gold. The United States is likely to revoke Hong Kong’s special status. China would retaliate by limiting the purchase of U.S. products, triggering concerns that the U.S.-Sino Phase One trade deal is about to fall through.
The ongoing demonstrations in the United States have been weighing on market sentiment as well. It has also raised concerns about a spike in coronavirus cases, which has already claimed more than 100,000 lives in the nation. The greenback has also fallen to its lowest since mid-March, further supporting bullion prices.Further, per the Institute for Supply Management’s latest report, the U.S Purchasing Managers’ Index (PMI) came in at 43.1 in May following a 41.5 reading for April. Notably, a reading below 50 denotes contraction. This indicates that the U.S economy will take time to fully recover from the pandemic and the shutdowns mandated by the government to contain the spread of the virus.
On the back of the gold-price rally, the Gold Mining industry has gained 22.6% so far this year as against the S&P 500’s decline of 5.1%. The industry falls under the broader Basic Material sector, which declined 10.4%.
What’s in Store for Gold?
The pandemic has impacted gold production as miners had to suspend operations in accordance to government mandates. Per the World Gold Council, gold production in the first quarter declined 3% year over year — marking the steepest decline since first-quarter 2017. Consequently, an impending demand-supply imbalance bodes well for gold prices.
The uncertainty regarding virus' impact on the global economy and the governments’ stimulus measures are likely to sustain gold until situation stabilizes. It will continue to be the preferred investment option supported by the low interest-rate environment, the pandemic-induced global slowdown as well as political uncertainties.
The gold mining industry currently carries a Zacks Industry Rank #15, which places it at the top 6% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been revised upward by 79%.
The combination of higher gold prices and lower oil prices, which make up significant portion of a miner’s costs, is likely to translate into improved operating margins and higher free cash flow for gold miners this year.
We, thus, believe the time is right for investors to add some gold stocks to their portfolio. We have employed the Zacks Screener to pick five top-ranked gold stocks. Our research shows that stocks with the combination of a VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities.
You can see the complete list of today’s Zacks #1 Rank stocks here.
5 Promising Stocks
AngloGold Ashanti Limited AU: Based in Johannesburg, South Africa, the company currently flaunts a Zacks Rank #1 and has a VGM Score of A. The company has a long-term estimated earnings growth rate of 19.5%. The Zacks Consensus Estimate for 2020 earnings indicates a year-over-year surge of 113%. The estimates have been revised upward by 6% over the past 60 days.
Barrick Gold Corporation GOLD: Based in Toronto, Canada, this company currently carries a Zacks Rank #2 and has a VGM Score of B. The Zacks Consensus Estimate for current-year earnings suggests a year-over-year improvement of 64.7%. The estimates have moved 23% north over the past 60 days. The company has a trailing four-quarter positive earnings surprise of 15.4%, on average. The company has a long-term anticipated earnings growth rate of 2%.
B2Gold Corp. BTG: The Zacks Consensus Estimate for fiscal 2020 earnings of this Vancouver, Canada-based company suggests growth of a whopping 221.4% compared with the prior fiscal year. The estimate has moved up 7% over the past 60 days. The company surpassed estimates in each of the trailing four quarters, the average positive surprise being 21.5%. The stock currently holds a Zacks Rank #2 and has a VGM Score of A. The company has a long-term projected earnings growth rate of 16.3%.
Pretium Resources Inc. PVG: This Vancouver, Canada based company also carries a Zacks Rank #2 currently and has a VGM Score of A. The Zacks Consensus Estimate for the current fiscal year suggests year-over-year growth of 16.4%. The estimates have gone up 8% over the past 60 days. The company has a trailing four-quarter positive earnings surprise of 33.1%, on average.
Kinross Gold Corporation KGC: Based in Toronto, Canada, the company presently holds a Zacks Rank #2 and has a VGM Score of A. The Zacks Consensus Estimate for ongoing-year earnings indicates a year-over-year jump of 61.8%.The estimate has moved up 17% over the past 60 days.The company has a trailing four-quarter positive earnings surprise of 38.8%, on average.
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Pretium Resources, Inc. (PVG) : Free Stock Analysis Report
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Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
AngloGold Ashanti Limited (AU) : Free Stock Analysis Report
B2Gold Corp (BTG) : Free Stock Analysis Report
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