At long last, it's Friday, and a turbulent week of selling, buying, and even more selling is at an end.
Investors seem exhausted by the roller-coaster week. Major market indices are slightly in the green as traders pause in relief, unfazed by the latest economic news that China is retaliating from the most recent U.S. tariffs hike on Chinese exports (to 145%) by raising its own tariff on U.S. exports to 125%.
Gold stocks, meanwhile, are looking like one bright pocket of green in the market today, with shares of Barrick Gold (GOLD +2.64%) rising 5.6% through 10:30 a.m. ET, Newmont (NEM +1.50%) up 6.6%, and Coeur Mining (CDE +2.48%) doing best of all -- up 7.6%.
NYSE: GOLD
Key Data Points
UBS loves gold stocks
Giving the gold industry a lift this morning is investment bank UBS, which this morning announced higher price targets on both Barrick and Newmont. As StreetInsider.com reports, UBS today raised its price target on Barrick stock to $25 a share, while maintaining a buy rating.
UBS also upgraded Newmont to buy, and raised its price target by 20%, to $60 a share. As the banker explained, gold stocks in general are following a script seen in past "major macro shocks," such as the Great Financial Crisis of 2008 and the pandemic of 2020.
To wit, UBS says, "gold & gold equities were initially sold" to cover margin calls and generally pare back stock investments, but "are now rallying" again. UBS sees gold as a safe haven in a turbulent market, and predicts the shiny metal will rise in price to as much as $3,500 an ounce (from $3,230 today) by 2026.
Long story short, UBS is predicting a "stronger for longer gold price environment" that should benefit all gold stocks. The analyst likes Newmont better than the others, though, because the stock has greatly underperformed the gold price index over the last five years, and so will presumably benefit disproportionately from any return to the mean.
Image source: Getty Images.
Which gold stock should you buy?
Is UBS right to recommend buying gold stocks? Investors won't have to wait long for their first clue. According to Yahoo! Finance data, Newmont will report earnings less than two weeks from now, on April 23, followed by Barrick on April 29. Coeur Mining recently confirmed its own Q1 earnings date will lag a bit behind, arriving on May 7, but even just seeing the forecasts from the first two gold mining companies should give us a strong hint of which way things are heading.
What I can tell you already today is that analysts are feeling pretty optimistic about these stocks as a group. Valued just under 18 times trailing earnings today, forecasts see Newmont profits surging in the year ahead, such that the stock's forward P/E ratio is just 8.4. Barrick balances a better trailing P/E (15.8) against more modest growth expectations yielding a forward P/E of 11.6.
Coeur, on the other hand, not only has its earnings farthest out, but also looks least attractive from a valuation perspective. Priced at 36.6 times trailing earnings today, Coeur stock's forward P/E drops to 13.7 looking 12 months out, indicating strong profits growth -- but still a more expensive valuation than its gold-mining peers. Adding to the unattractiveness, Coeur is currently the only one of these three gold stocks that is not generating positive free cash flow.
So which of these three stocks would I buy, were I in the market for a good gold stock? Honestly, my hunch is that Barrick is the best of the bunch. Valued on P/E, the stock seems reasonably priced already, and its valuation isn't as dependent on hitting aggressive growth targets as is Newmont's.
Additionally, Barrick has the least leveraged balance sheet, with only $1.2 billion more debt than cash. And Barrick generates substantial free cash flow of $1.3 billion -- not as much as the $3 billion that much larger Newmont throws off, granted, but still a tidy sum.
Factor in its modest 2.3% dividend yield, and Barrick looks like a decent way to invest in UBS's prediction of a bright future for gold stocks to me.
