What was an undervalued sector for a very long time, Canadian gold miners and other stocks tied to precious metals prices are surging. That’s no surprise, given that the price of gold has gone from around US$2,500 per ounce one year ago to around US$4,000 per ounce today.
That’s a massive move, and represents a chart many growth stocks would have liked to see. While gold is down considerably from its peak a few months ago, this is an asset class that clearly has strong demand.
For those looking to increase exposure to gold, here are three Canadian stocks I think could provide the best leverage to rising gold prices right now.
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Agnico Eagle
In the Canadian gold mining sector, Agnico Eagle (TSX: AEM) remains my top pick.
There are good reasons for this.
First, Agnico Eagle’s high-volume and high-grade mines are among the best in the world. Agnico also happens to operate these mines, which are located in very mining-friendly jurisdictions, in a very efficient manner, producing some of the highest-quality gold at some of the lowest all-in sustaining costs in the sector.
Such efficiency matters a great deal, and it’s why AEM stock is up so much more than the price of gold over the course of the past year. Given these efficiency gains and the ability of Agnico to continue to ramp up production as the price of gold rises further, it’s mostly upside for investors betting on a continued bull market in the price of gold.
Barrick Gold
One of the world’s largest gold miners, Barrick Gold (TSX: ABX), continues to be a top pick of institutional money managers due to the company’s size and scale.
That said, I’d argue there are other reasons why investors may want to consider this top gold miner aside from its size and scale.
On a relative basis, Barrick Gold is valued much more attractively than companies like Agnico Eagle or Franco Nevada (next on this list). At just 17 times earnings, with a dividend yield of nearly 2%, there’s a strong valuation and total return rationale for why investors will want to consider this stock right now.
That compares to 40 times earnings for Franco-Nevada. Barrick Gold is clearly the value play in this sector.
Franco-Nevada Corp.
A royalties and precious metals streaming giant, Franco-Nevada Corp. (TSX: FNV) is an excellent way to play rising gold and precious metals prices.
In fact, I’d argue this company could be the best way to play this trend. That’s because companies like Franco-Nevada have a business model that’s extremely high-margin in nature, with some of the best upside to rising gold prices out there.
Franco-Nevada and other royalty/streaming companies provide up-front capital to develop mines (which can be hard to come by due to a lack of willingness from banks to lend to this sector). In exchange, Franco-Nevada gains a percentage of gold, silver and other metals mined at either attractive prices below market, or as part of their debt repayment profile. Thus, there’s little downside. If prices go down, Franco-Nevada can be paid back in dollars. If the price of gold goes up, the company receives its payment in gold.
That’s the kind of upside that investors are looking for, and it’s why Franco-Nevada’s chart looks like it does above.
