Gold miners have proven to be fickle investments over the years. Indeed, unlike investing in precious metals directly, buying gold stocks such as Kirkland Lake Gold (TSX:KL)(NYSE:KL) and Barrick Gold (TSX:ABX)(NYSE:GOLD) provide greater leverage to the underlying commodity prices investors want exposure to. Accordingly, these gold stocks can be viewed as a leveraged play on the price of gold.
For some investors, that’s a good thing. More leverage is a good thing for those ultra-bullish on the outlook for these commodities. However, those concerned with the historically poor performance gold stocks have provided as a result of too much leverage, poor capital allocation, and over-zealous management teams may choose to go the safer route and buy some bouillon.
That said, there are reasons why Kirkland Lake and Barrick gold remain top gold stocks in my book. Let’s discuss why these two stocks could be the most undervalued miners out there right now.
Top gold stocks: Kirkland Lake Gold
Kirkland Lake Gold continues to be one of my top picks among gold stocks.
Indeed, this miner has some of the best fundamentals of its peers. The company’s rock-solid balance sheet is driven by high-margin production and well-operated, high-grade mines. With essentially zero debt and massive capital reserves, Kirkland Lake’s valuation looks obscenely cheap right now.
Currently, Kirkland Lake trades at a valuation of roughly 14 times earnings. Given the strength we’ve seen in gold prices of late, this valuation looks to be modest, to say the least.
It’s my view that Kirkland Lake’s balance sheet should drive outperformance relative to its peers longer term. This is a miner with the ability to boost production, dividends, or both. That’s a luxury not many gold stocks have and is likely to persist in this current commodity price environment.
Investors seeking stocks with a wide margin of safety should certainly consider Kirkland Lake right now.
Another top gold miner that’s been on my watch list for some time is Barrick Gold. This stock has grown in interest among many investors of late partly due to Warren Buffett’s previous ownership of Barrick stock. While the Oracle of Omaha did divest of his stake, the fact that Warren Buffett stepped into a gold stock was incredible. And the fact that this stock was Barrick showed the value in this miner relative to its peers.
I think Barrick’s allure comes mostly from its size. As one of the largest miners in the world, Barrick’s gold reserves are truly world class. Accordingly, long-term investors looking to play the price of gold over a span of decades may want to own gold stocks with staying power. Barrick Gold is among the best in this regard.
Barrick anticipates that the average annual gold output from its mines will be around five million ounces through 2030. The company has also forecasted that its all-in sustaining costs will decrease in the forthcoming years.
These factors, among others, make Barrick and Kirkland Lake two top TSX gold stocks to consider right now.
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 Chris MacDonald has no position in any stocks mentioned in this article.