The 3 Best Gold Mining Stocks (To Buy Right Now)
The signs are everywhere. Political instability is on the rise. Not just in the United States, but all over the world. Rigged elections. Bomb threats. Mass shootings. Where it all will end is anyone’s guess.
One thing is for certain, though. When the going gets tough, investors become nervous. Greed gives way to fear as democracy and capitalism come under attack.
During difficult times, gold is viewed as one of the few asset classes worth owning since there isn’t much of it and everybody wants it. That’s why we suggest holding gold mining stocks in your portfolio as a hedge against global chaos.
But what are the best stock to hold?
That’s what I’m about to get into in this edition of Investing Daily.
Let’s get into it!
Our Top 3 Gold Mining Stocks
If you’re in a hurry, below are my top picks for gold mining stocks as of this writing.
- Barrick Gold: Strong financials, solid infrastructure, and a nice 1% dividend
- Endeavor Mining: Good appreciation potential and a convertible bond option for investors seeking income
- Oceana Gold: Carries minimal debt with an attractive 25% profit margin
Keep on reading to learn about these companies and my thoughts on each.
What Are Gold Mining Stocks?
Gold mining stocks are publicly traded companies that dig for the yellow metal all over the world. That means you own shares of a business, and not the actual commodity itself. Your shares of stock are held at a broker so there is no risk of losing them or having them stolen from you.
Owning gold is expensive because you must store it securely. If it is lost or stolen, it is almost impossible to recover. Also, gold pays no dividend and no interest so there is no financial benefit to you until it is sold.
Some gold mining stocks pay dividends, and all of the bonds those companies issue pay interest. That means you can get paid to wait if you like while the gold these companies own is processed and sold.
How Do You Determine What Qualifies As The Top Gold Mining Stock?
Even though all gold miners do essentially the same thing, they are not all equally safe. Some operate in dangerous parts of the world. Others employ extraction methods that are prone to failure.
Of course, the first place to look for a top gold mining stock is the company’s financial statements. Too much debt and not enough cash is a sure sign of trouble down the road. For that reason, I look for a current ratio of 1.5 or better. That means a company has at least 50% more cash than it does short-term debt.
I also prefer gold mining stocks trading at less than two times their book value. Book value is a company’s total assets minus its liabilities and intangible assets. Since gold mining is very much a tangible business, I want to be sure that the stocks I am recommending can be bought at a fair price, such as the three below.
What is it?
Barrick Gold Corp. (NYSE: ABX) is headquartered in Toronto, Canada and employs over 10,000 people on four continents. It operates gold and copper mines all over the world including North and South America, Africa, and Australia.
As a result of its proposed merger with Rangold, Barrick will control half of the world’s ten highest-rated gold producing properties. In addition, the company recently entered into a cross-ownership agreement with China’s Shandong Gold Group, with whom it jointly owns and operates a mining facility in Argentina.
Why is it a good stock?
Barrick is very strong financially. It holds over $2 billion in cash and generates more than $1 billion of cash flow annually thanks to its operating margin of 30%. It is priced at less than two times book value, with a current ratio in excess of twice its short-term debt.
Barrick pays a quarterly dividend that works out to an annual yield of about 1%. The company offers a DRIP (dividend reinvestment plan) if you want to roll that money back into more shares of the stock.
With the Chinese government as a business partner, Barrick is poised to overtake Newmont Mining Corp. as the most valuable gold mining company in the world in 2019.
What is it?
Endeavour Mining Corp. (OTC: EDVMF) is headquartered in London, England. It operates mines in six areas of the African nations of Mali, Burkina Faso, and Cote D’Ivoire (Ivory Coast).
Endeavour can produce gold at an “all-in” cost of roughly $800 per ounce, well below its current market value. It has more than 9 million ounces of reserves and estimates another 10 – 15 million ounces of future reserves within its current discovery target areas.
Why is it a good stock?
Endeavour is a favorite among institutional investors. Only 5% of its shares are owned by individual investors, with the majority held by large mutual fund complexes such as BlackRock and Van Eck.
Another 30% of Endeavour’s shares are owned by La Mancha, a private equity firm headquartered in Luxembourg that specializes in investing in African and Australian gold mining companies.
Endeavour does not pay a dividend on its common stock. However, it does offer a convertible bond with a 3% coupon rate for investors seeking current income in addition to capital appreciation potential.
What is it?
OceanaGold Corp. (OTC: OCANF) is headquartered in Melbourne, Australia with mining operations in North and South America, The Philippines, and New Zealand. It specializes in using cutting-edge technologies to extract gold profitably from complex formations.
OceanaGold’s ADaP” technology platform focuses on three key areas: Analytics, Automation, and Digital. It credits this approach to its injury-free track record and its ability to conform to responsible environmental standards while delivering a high level of return on invested capital.
Why is it a good stock?
OceanaGold is priced the cheapest of the five major Australian gold miners at a little over one times book value. Yet it has one of the widest profit margins at 25% and carries relatively little debt.
Recently, the company announced that exploratory drilling at its Macraes mine in New Zealand confirmed the presence of significant gold reserves that are “highly levered to the gold price and the resource is vast.”
That should translate into higher top-line revenue in 2019. The company paid a discretionary dividend in the third quarter of 2018 and is likely to do the same in 2019 if operating results continue on their current path.
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