2 Gold Stocks Worth Checking Out Despite the Bear Market for Bullion

Goldcorp Inc. (TSX:G)(NYSE:GG) and Semafo Inc. (TSX:SMF) were name-checked by analysts seeking outperformance in the beaten-down gold sector.

There’s still value to be found in the gold sector, despite an extended bear market for bullion, which has seen prices hover around the $1,200-per-ounce range for months. Speculation that the U.S. Federal Reserve will raise rates for the first time in nearly a decade has weighed on gold prices in 2015. But some gold miners have continued to boost production, despite weaker prices, suggesting a buying opportunity for prudent investors.

Goldcorp Inc.

Goldcorp Inc. (TSX:G)(NYSE:GG) has the qualities investors should be looking for in a gold stock, including free cash flow generation, debt reduction, growing production, and lower capex and operating costs.

“Goldcorp has been, is, or soon will be, doing all of these things,” said TD Securities analysts Greg Barnes in a recent client report. “In our view, it is time to put away the rear-view mirror,” he added, noting that investors have been too focused on the gold miner’s past, particularly its net debt, which Barnes said appears to have peaked in the first quarter of 2015.

Goldcorp has two new mines ramping up, and recently sold its stake in Tahoe Resources, which raised almost $1 billion. Barnes estimates Goldcorp’s net debt-to-EBITDA ratio will fall to roughly 1.15 times by the end of 2016, versus 1.85 times at the end of 2014.

Barnes expects the miner to generate approximately $1.3 billion in free cash flow over the next three years based on a $1,300-per-ounce gold price, which he says should be more than enough to fund the company’s dividend of about $500 million. Barnes raised his rating on the stock to action buy list from buy, with a price target of $29 per share.

Semafo Inc.

With significant exploration success and prudent balance sheet management, Semafo Inc. (TSX:SMF) sets an example for other gold producers to aspire to according to Dundee Securities analyst Joseph Fazzini, who recently initiated coverage of the stock with a buy rating.

“Over the years, Semafo has demonstrated its ability to set realistic expectations and deliver on its promises of generating positive free cash flow. We attribute this to low-cost production from its flagship (90%-owned) Mana mine in Burkina Faso,” said Fazzini in a research note.

While the flagship Mana mine maintains sizable reserves and resources, Fazzini noted Semafo’s recent acquisition of the Natougou project “enhances its future production profile with another Burkina Faso asset hosting potential for robust project economics and significant exploration upside.”

According to data compiled by Thomson Reuters, Semafo is covered by 15 equity analysts, with 12 of those giving it a buy rating.

In Q1 Semafo’s gold production increased 86% to 65,200 ounces, helping the miner to swing to a net income gain of $8.2 million, or $0.03 per share, compared with a net loss of $12.8 million, or $0.04 per share, in the same period last year.

While the long-term trend on Goldcorp and Semafo’s stock prices is negative, a turnaround could be in the cards for both gold miners, who have continued to boost production and generate free cash flow despite a weak gold price environment. Foolish investors should consider further research on these two stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Doug Watt has no position in any stocks mentioned.

More on Metals and Mining Stocks

Tractor spraying a field of wheat
Metals and Mining Stocks

Where Will Nutrien Stock Be in 1 Year?

Nutrien stock has had a rough few years, and this next year may not be easy. But long-term investors may…

Read more »

nugget gold
Metals and Mining Stocks

Gold Stocks vs Silver Stocks: Which Have the Shinier Outlook?

Gold and silver are on a roll in 2024.

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is Kinross Gold Stock a Good Buy?

Kinross (TSX:K) stock has certainly been showing strength lately, but is it enough to bring investors on board?

Read more »

nugget gold
Metals and Mining Stocks

China Hits Gold: What Mining Investors Need to Know

China Gold International Resources (TSX:CGG) stock and other great gold plays look enticing as the recent China find looks to…

Read more »

nugget gold
Metals and Mining Stocks

Bullish on Precious Metals? These Are Promising Gold Investments

Consider Agnico Eagle Mines (TSX:AEM) and another top mining stock to play the run in gold into 2025.

Read more »

Paper Canadian currency of various denominations
Metals and Mining Stocks

This Billionaire Is Selling Micron and Picking up This TSX Stock

Prem Watsa may have sold some Micron, but he's putting the funds towards something with even more growth potential.

Read more »

nugget gold
Metals and Mining Stocks

Must-Watch Gold Stocks Before Year-End

Gold prices have been going up for the better part of the year, and it is highly probable that this…

Read more »

construction workers talk on the job site
Metals and Mining Stocks

2 No-Brainer Mining Stocks to Buy With $200 Right Now

You can buy these top Canadian mining stocks with just a $200 investment right now to start your long-term wealth…

Read more »