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Why This Gold Stock Rallied 10% in July When Others Fell

By Neha Chamaria – Aug 8, 2021 at 8:30PM

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Despite several analyst downgrades, interest in Franco-Nevada shares picked up ahead of its earnings release.

What happened

Shares of Franco-Nevada (FNV -1.17%) rallied 10.2% in July, according to data from S&P Global Market Intelligence. It was quite a month for the stock, given the flurry of upgrades and downgrades it received -- it doesn't usually see such high interest from the analyst community at one go. Those ratings included multiple downgrades, but they failed to dampen investor interest in the gold streaming and royalty stock.

So what

July was a choppy month for Franco-Nevada until the last week of the month, when it rallied. In between, here are just some of the analyst ratings that the stock received.

Upgrades:

  • National Bank Financial: Raised price target to $200 Canadian a share, from CA$200.
  • Stifel: Raised price target to CA$195 per share.

Downgrades:

  • Barclays: Downgraded with a price target of $107 a share.
  • Canaccord Genuity: Downgraded with a price target of CA$200 a share.
  • J.P. Morgan: Downgraded rating with a price target of $159 a share.

The views on Franco-Nevada are clearly divided, and some analysts who downgraded the stock did so citing its high valuation --the stock had gained 16% in the first half of the year even as most gold mining stocks declined.

Two persons studying stock price charts on computer screens.

Image source: Getty Images.

Yet Franco-Nevada shares surged in the last week of July alongside gold price, buoyed by the Federal Reserve's Open Market Committee (FOMC) statement. Gold, as an asset, is sensitive to interest-rate changes, as higher interest rates make gold a less attractive investment versus instruments like bonds.

Investors in gold were jittery ahead of the FOMC's statement in late July, but the FOMC kept interest rates unchanged. Gold prices gained some strength soon after, and so did Franco-Nevada shares. Franco-Nevada has proved to be a hugely resilient gold stock, which is why investors don't seem to lose any opportunity to buy the stock when its price dips.

FNV Chart

FNV data by YCharts

Now what

Gold prices are bound to be volatile, and as much as some analysts may find Franco-Nevada's valuation high, I still believe it's one of the best and cheapest gold stocks you could buy right now, given the company's high-margin business model and strong growth profile. With Franco-Nevada also delivering a record year in 2020, investors should keep an eye out for its upcoming second-quarter earnings release on Aug. 11, after the market closes.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Franco-Nevada Stock Quote
Franco-Nevada
FNV
$145.54 (-1.17%) $-1.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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