In the first half of 2017, gold prices have gained around 8%, continuing the momentum of 8.5% annual gain in 2016. Meanwhile, the U.S Dollar has slipped 6.4% in the same time frame, its worst patch in six years. It is a well-known fact that gold and the US dollar usually have an inverse relationship. While the Fed’s rate hike impacted gold’s run, the weaker US dollar and other geopolitical concerns helped boost its safe haven demand. Also China and India witnessed renewed physical gold demand this year, after observing a lackluster demand last year due to economy-specific reasons.
Recently, the International Monetary Fund (MF) trimmed forecast for the US economy from 2.3% to 2.1% for 2017 due to policy uncertainty. A slower-than-expected growth for the US economy would be positive for gold.
Gold prices will get support from retail demand for gold in the second half of the year, which is seasonally strong for India and China due to festival and wedding related buying activities. The World Gold Council anticipates demand from China to grow at least another 20% by 2017. Indian gold demand rose in the first half of 2017 as gold imports rose in June to its highest level in two years to $4.9 billion, benefiting from pent-up demand. Further, customers built up inventories before the implementation of the Goods & Services Tax (GST). Though the imposition of GST poses a short-term challenge, a more transparent economy, expectations of bumper crop following a good monsoon will boost gold demand consequently. The World Gold Council anticipates consumers to buy between 650 tons and 750 tons of gold during the year.
While demand will remain strong, supply of this precious metal has already attained peak levels as per reports. The combination of lower mined gold supply and higher demand could eventually help prices navigate north.
Performance So Far, Predictions for Q2
As per the Zacks classification, the gold mining industry comes under the broader Basic Materials sector. Per the latest Earnings Trends report, so far only 5% of the companies in the sector (9.4% of total market capitalization) have reported second-quarter results, putting up a 10.4% decline in earnings on the scoreboard. Taking into account all the companies that are yet to report, a 1.6% increase in earnings is projected for the quarter backed by a 3.2% rise in revenues. It is worth a mentioning that the Basic Materials sector is one of the 10 broader Zacks sectors that are anticipated to log positive growth this quarter. The growth graph is expected to pick up in the later part of the year with the 4.9% growth forecasted for the third quarter and 17% for the fourth quarter.
Consequently, backed by the overall positive projections this quarter, it makes sense to bet on gold miners that have the potential to beat earnings in their upcoming releases. A beat backed by earnings growth and a positive outlook for the industry would instil investor confidence in the stocks leading to immediate price appreciation.
How to Make a Choice?
Given the plethora of players in the mining industry, picking the right stocks is a daunting task. But our proprietary methodology makes it fairly simple. One can narrow down the list with the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP, which is the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. It helps in picking stocks that have high chances of delivering earnings surprises in their next earnings announcement. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are few gold mining stocks that have this compelling combination to rack up positive surprises this earnings season:
IAMGOLD Corporation (IAG - Free Report)
Toronto-based IAMGOLD explores, develops, and operates mining properties in North and South America, as well as West Africa. The company explores for gold, copper, zinc, and silver. The company with a market capitalization of 2.41 billion has an expected long-term earnings growth of 3%.
This Zacks Rank #3 stock has an Earnings ESP of +300%. The Zacks Consensus Estimate for the second quarter is currently pegged at a loss per share of 1 cent per share. Analysts have become more optimistic on the company given that the expectation for the second quarter has gone up from the loss per share of 2 cents to loss per share of 1 cent in the last 30 days. In the trailing four quarters, the company posted an average positive earnings surprise of 141.67%.
IAMGOLD is scheduled to report second-quarter results after the market closes on Aug 9.
Agnico Eagle Mines Limited (AEM - Free Report)
Agnico Eagle Mines is a Canada-based gold producer which has exploration and development activities in Canada, Finland, Mexico and the U.S. The company has a market capitalization of $10.5 billion with a long-term expected earnings growth rate of 1%.
Agnico Eagle has an Earnings ESP of +6.67% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here. Analysts have become more optimistic on the company given that the earnings expectation has gone up 15% for the second quarter to 15 cents per share in the last 30 days. Further, second-quarter earnings are expected to log an annual growth of 90%. The company has delivered an average earnings surprise of 12.24% in the past four quarters.
Agnico-Eagle is scheduled to report second-quarter results after the market closes on Jul 26.
Goldcorp Inc. (GG - Free Report)
Vancouver, Canada-based Goldcorp is a leading gold producer engaged in gold mining and related activities across Canada, the U.S., Mexico along with Central and South America.
The company with a market capitalization of $10.9 billion has a long-term expected earnings growth rate of 10%.
This Zacks Rank #3 stock has an Earnings ESP of +10.00%. The Zacks Consensus Estimate has moved up 11% in the last 30 days and is currently pegged at 10 cents, a turnaround from the loss per share of 1 cent in second-quarter 2016. The company has delivered an average earnings surprise of 5.56% in the preceding four quarters.
Goldcorp is scheduled to report second-quarter results after the market closes on Jul 26.
Sustained demand from Asia, diminishing supply and geopolitical tensions will work in favor of gold. At this juncture, these possible winners backed by a solid Zacks Rank and a positive Earnings ESP could be a great investment to gain from this earnings season.
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