It has been years since gold has been able to catch a bid. Mired in sideways trading for the better part of the past five years, gold is finally regaining its lustre. Along with it, gold stocks are starting to perk up and are finally starting to seize investors’ attention.
For those looking to increase their gold exposure, it is good timing, as we are entering a strong period of seasonality for the precious metal. With that in mind, here are two gold stocks that are worth a closer look.
A top-performing stock
Despite a long-run depressed industry trading, Kirkland Lake Gold (TSX:KL)(NYSE:KL) has bucked the trend in recent years. Not only has it been one of the best-performing stocks in the sector, it has been one of the best on the TSX Index.
Over the past five years, the stock has climbed from a penny stock trading at $0.53 per share, to $60 as of Wednesday’s close. That is a gain of 11,300%. Had you invested $10,000 in the company back then, your position would be worth $1.13 million today. You could have turned $10K into $1 million in five short years.
Although investors should not expect anywhere near this type of capital appreciation moving forward, Kirkland Lake is still poised for growth. Last week, the company announced second-quarter results in which production jumped 43% over last year. Analysts expect the company to grow earnings by 33% on average over the next couple of years.
The company is also quietly becoming one of the more reliable dividend payers in the sector. Free cash flow (FCF) is up by triple digits over the past 12 months. It is therefore not surprising to see that the dividend has jumped 500% since 2017 and accounts for a mere 5% of FCF.
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An underperforming stock
On the flip side, now is also the time to jump on gold stocks that have underperformed the market. Case in point, Leagold Mining (TSX:LMC). Leagold is a new player in the industry and only began trading on the TSX in April of 2018. This mid-tier producer owns four gold-producing minds and has a clear path to more double production from 2018 levels.
Unfortunately, the company has struggled, losing 15% of its value this past year and is down 33% from its IPO levels.
In 2019, the company expects to produce 400,000 oz of gold at the mid-range of guidance. This is up from the 302,550 oz of gold produced in 2018. On average, analysts expect triple-digit earnings growth, and all six analysts covering the company rate it a buy. They have a one-year price target of $2.83, which implies 36% upside from today’s price of $2.08 per share. Even the lowest price on the street ($2.37) infers double-digit (14%) upside.
Similar to Kirkland Lake, Leagold Mining is generating strong cash flows, which allows it to internally fund its growth projects. No external financing is required. Backed by some of the world’s largest players, such as Yamana Gold and Agnico-Eagle Mines, Leagold Mining offers investors an attractive value proposition.
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 Mat Litalien has no position in any of the stocks mentioned.