Rising to an all-time high of $2,135 per ounce, gold had never seemed as lustrous as it did in 2023. The spot price of the metal soared 13% last year, and there's speculation that it will continue to remain in demand in 2024 -- perhaps even setting a new high.
But what's the best route to add some glitter to your portfolio? Sure, visiting the local coin gallery and buying gold bullion is one option. However, Agnico Eagle Mines (AEM +2.49%) Franco-Nevada (FNV +1.83%), and Newmont (NEM +2.73%) are three gold stocks that provide even better opportunities for gold bugs in the new year.
NYSE: AEM
Key Data Points
1. Agnico Eagle
Agnico Eagle is a gold-mining stock that outshines many of its peers with its mines in North America, Finland, and Australia. After its 2022 merger with Kirkland Lake Gold and its acquisition of Yamana's Canadian assets, Agnico has emerged as a leading producer of gold -- and profits. Compared to Barrick Gold and Gold Fields, two of its leading peers based on market cap, it distinguishes itself with strong free cash flow.
AEM free cash flow per share (annual) data by YCharts.
This helps provide the ability to acquire more assets or to advance growth projects that will expand its mineral resources and strengthen the company's future.
The strong free cash flow has also helped the company to remain in sound financial health -- something that's not always the case with mining companies, which require large amounts of capital to develop their assets. At the end of 2023's third quarter, Agnico had an investment-grade balance sheet and a conservative ratio of 0.36 in net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA).
Currently, investors can grab shares of Agnico Eagle from the bargain bin. The stock sells for about 11.2 times operating cash flow, a discount to its five-year average cash-flow multiple of 13.5.
NYSE: FNV
Key Data Points
2. Franco-Nevada
Unlike mining companies that dig gold out of the ground, Franco-Nevada is a royalty and streaming company. More like specialized financiers, royalty and streaming companies provide up-front capital to miners to help them finance their capital-intensive projects. In return, they receive the right to acquire future mineral production for a set price (usually lower than the current market price) or to receive a portion of the mined minerals.
Because of this business model, Franco-Nevada provides gold investors with an investment opportunity that has less risk than the mining companies that must execute on the development of the assets.
While Franco-Nevada has exposure to other metals as well as oil and gas, its gold represents the lion's share of the company's revenue: 78% as of last year's third quarter. And the company has partnerships with some of the leading gold mining companies, including Barrick, Newmont, Agnico Eagle, and Kinross Gold.
Further evidence of Franco-Nevada's appeal for conservative investors comes from the stock's rock-solid balance sheet that features zero debt and $1.3 billion in cash.
NYSE: NEM
Key Data Points
3. Newmont
Newmont, with a history stretching back over a century, is the largest gold-mining stock based on market capitalization, and it's the only gold producer included in the S&P 500.
The company appears a lot more attractive now since it closed on its acquisition of Newcrest in November. Newmont expects the transaction to immediately add value, projecting that it will achieve $500 million in pre-tax synergies in the two years following the closing of the deal as well as a minimum of $2 billion in cash improvements through portfolio optimization during the same period.
One of the especially alluring qualities of Newmont is its attention to rewarding shareholders. The company has a unique dividend policy among gold stocks in that it distributes a fixed dividend of $1 per share (at a gold price of at least $1,400 per ounce) and a variable dividend based on the company's free cash flow.
Currently, Newmont's stock offers a juicy 4% forward-yielding dividend. And those concerned about whether the company is jeopardizing its financial health to appease investors can rest assured thanks to the company's conservative approach to leverage. At the end of Q3 2023, Newmont had a net-debt-to-adjusted-EBITDA ratio of 0.7 -- below the company's targeted ratio of 1.
Which gold stock is the best addition to your portfolio?
The most conservative investors yearning for gold exposure will find that Franco-Nevada is probably their best bet thanks to its debt-free balance sheet and a business model that represents a lower risk profile than other gold stocks.
For those comfortable with a higher degree of risk, however, Agnico Eagle and Newmont both offer great propositions -- especially Newmont, with its compelling dividend policy.
