What are we looking for?
TSX-listed gold producers trading below their target share price.
The screen
In periods of economic turmoil, investors often pursue high quality assets in their portfolios, a strategy that is frequently referred to as a flight to safety. Gold is frequently viewed as a haven asset class during periods of high volatility and this trend has continued in 2020. Gold has been one of the top performing commodities this year, with the spot price of gold up nearly 14 per cent and the S&P/TSX Global Gold Index up nearly 35 per cent. Canada is home to about 50 per cent of all publicly traded gold companies, providing Canadians with several investment options in this sector.
Today, we search for TSX-listed gold companies with potential upside using these criteria:
- First, we screen for producers with a market capitalization greater than $1-billion.
- Next, we screen for companies that have shown strong historical price momentum. The StarMine Price Momentum Model includes a blend of short, mid and long-term components, and recognizes the tendency of long-term trends in returns to continue, and conversely, the tendency of short-term trends to revert to their long-term mean. We screen for companies with a score greater than or equal to 90 (with 100 being the highest score).
- Finally, we screen for companies with highly favourable analyst sentiment. The StarMine Analyst Revision model tracks the changes in analysts’ recommendations of a stock. These upward and downward revisions in target prices have been shown to be highly correlated to stock price movements, meaning, for example, if a highly ranked analyst increases their target price the stock is likely to increase. We screen for companies with a score greater than or equal to 90, with 100 being the highest score.
Together, these two StarMine models can help us find stocks with further upside.
More about Refinitiv, StarMine
Refinitiv is one of the largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. StarMine, Refinitiv’s proprietary quant-based analytics, includes 16 quantitative models covering value, momentum, ownership, risk and quality, and are built using industry-leading content including I/B/E/S Estimates, Refinitiv Fundamentals, Reuters News and more.
What we found
The screen produced seven gold companies, all of which have returned more than 65 per cent to investors over the past 12 months.
Kinross Gold Corp. is the second-largest Canadian gold producer, and the largest pure play gold producer with operations in the Americas, West Africa and Russia. Kinross received a score of 100 in the Analyst Revision Model, making it the top ranked gold company in that category. The mean price target for Kinross is $11.42, which represents an upside of 18 per cent from the recent close of $9.68. Three of the top four ranked analysts have increased their target prices in the past three weeks, and all four currently have a “buy” rating on the stock. Kinross has kept all mines operational during COVID-19 and management recently informed investors that the company has not seen any productivity loss, and that any cost overruns would be offset by favourable foreign exchange rates and decreased input costs.
Barrick Gold Corp. is the second-largest gold producer in the world, and the largest gold producer in Canada in terms of market capitalization. Unlike Kinross, Barrick is also involved in copper production, and has mining operations spanning five continents. Barrick received a score of 100 in the Price Momentum Model, tying it with Equinox Gold Corp. for the top ranked gold company in this category, and shares in Barrick have shown a long-term upward trend with a five-year total return of more than 155 per cent. Management has been focusing on cost-cutting initiatives, and with cash costs of US$700 an ounce, the company is well positioned with gold prices above US$1,700 an ounce.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a customer success manager supporting Refinitiv’s trading solutions.
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