Investing in quality, undervalued stocks can help you derive outsized gains over time. You need to identify fundamentally strong companies trading below their intrinsic value and benefit from market-beating returns when investor sentiment improves.
Canadians can consider investing in beaten-down gold mining stocks right now. First, gold is an alternate asset class that offers you portfolio diversification. Second, gold and interest rates have an inverse relationship. With multiple interest rate hikes on the horizon, there is a good chance gold prices will move higher in 2024, which should translate into higher earnings for mining companies.
Finally, gold thrives amid periods of economic uncertainty and geopolitical tensions. The ongoing wars between Ukraine-Russia and Israel-Hamas might act as tailwinds for the yellow metal, in addition to the threat of an upcoming recession.
Gold prices touched an all-time high of $2,135 per ounce last year as spot prices of the precious metal surged 13% in 2023.
Given these factors, here is one undervalued dividend stock I would buy right now.
Is Agnico Eagle Mines stock a good buy?
Valued at $33 billion by market cap, Agnico Eagle Mines (TSX:AEM) is one of the largest gold mining companies in Canada, with operations in North America, Europe, and Australia. It has a pipeline of high-exploration and development projects following the company’s acquisition of Kirkland Lake Gold in 2022.
In Q3 2023, Agnico Eagle reported 850,000 ounces of production at a cost of less than US$900/ounce. It aims to increase its production target to one million ounces a year at the Detour mine, which is expected to be a key driver of top-line growth.
Agnico Eagle reported sales of US$1.6 billion and an operating margin of US$883 million as it sold 843,000 ounces at an average price of US$1,928 per ounce in the September quarter. In the first nine months of the year, it produced just over 2.5 million ounces of gold, which should enable the company to exceed the midpoint of its production guidance for 2023.
The gold miner’s cash cost guidance was forecast between US$840 million and US$890 per ounce for the year. In the last three quarters, its cash costs stood at US$857 per ounce. Agnico’s adjusted net income per share stood at US$0.44 lower than the year-ago period due to inflation and a higher cost base.
Agnico Eagle offers a dividend yield of 3.2%
Agnico Eagle ended Q3 2023 with US$355 million in cash and US$1.1 billion in available liquidity under its revolving credit facility. Its net debt position increased to US$1.6 billion due to increased working capital requirements. However, its net-debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio is quite low at 0.5 times.
A strong balance sheet allows Agnico Eagle to pay shareholders an annual dividend of $2.15 per share, indicating a yield of 3.2%. These payouts have increased by more than 300% in the last eight years.
Priced at 20.5 times forward earnings, Agnico Eagle stock trades at a discount of 50% to consensus price target estimates.