Why Gold Is a Safe Bet in 2018

Investors: turn to Agnico Eagle Mines Ltd. (TSX:AEM)(NYSE:AEM) for its gold exposure and superior operational performance.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published January 15, 2018 9:37 am EST

With a falling U.S. dollar, continued geopolitical tension, a stock market frenzy, and with Bitcoin and marijuana bubbling with froth that increasingly looks like it may be setting up for an implosion of some degree, investors can turn to gold for safety.

Trading at over $1,330 an ounce, gold prices are hitting three-month highs.

Here are my two picks for investors looking for the “safe-haven” qualities of gold stocks.

Agnico Eagle Mines Ltd. (TSX: AEM)(NYSE: AEM) is a great place to start. The stock has rallied 10% in the last month in what I think will be a sustained rally into 2018.

With the company reporting third-quarter results that were well above expectations (EPS of $0.29 versus expectations of $0.16), and guidance being increased again, this stock makes a great addition to investors’ portfolios.

The stock has a dividend yield of 1%, but the key here is that the dividend was recently increased by 10%, and the company continues to perform better than its guidance.

Gold production in the quarter was 454 ounces — 9.1% higher than the same quarter last year. And, just as important, the company achieved an all-in sustaining costs per ounce (AISC) of $789 — also better than expected.

And going forward, the company increased its gold production target and decreased its AISC to $820-870. This compares to prior guidance of $830-880, and initial 2017 guidance of $850-900.

Those are pretty significant changes for the better.

Lastly and worth noting is the fact that Agnico has shored up its balance sheet and currently has a debt-to-capitalization ratio of 21.9% and almost $1 billion of cash on the balance sheet.

Agnico reports on February 15, at which time I would expect a rally in the shares, as the company continues to perform above expectations.

For investors looking for more risk in order for the potential of a higher return, attractively valued OceanaGold Corporation (TSX:OCG) is a good option for exposure to gold.

OceanaGold is delivering stellar results on the production side of things as well as on the cost side.

In the latest quarter, production increased 9%, and the company achieved AISC of $748, which was up from last quarter but still compares very favourably to industry bellwether Agnico. And the company is still targeting an AISC of $600-650 per ounce for the full year.

In summary, when all the market risks come to fruition, investors will be clamouring for gold stocks for their attractive appeal as “safe havens.”