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What Makes Newmont (NEM) an Attractive Investment Choice

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Newmont Corporation (NEM - Free Report) stock looks promising at the moment. The company’s shares have gained around 15% so far this year.

We are positive regarding the company’s prospects and believe that the time is right for investors to add the stock to their portfolios as it looks promising and is poised to maintain the momentum.

Let's see what makes this company a compelling investment option at the moment.

An Outperformer

Newmont has significantly outperformed the industry in the past year. The company’s shares have rallied 36.5% against a 27.4% decline recorded by the industry. The company also outpaced the S&P 500’s fall of 7.6% for the same period.

Key Growth Projects

Newmont is pursuing a number of projects, including Tanami Expansion in Australia and Subika Underground and Ahafo mill expansion in Africa. Notably, the Africa operations witnessed 1.1 million ounces of attributable gold production in 2019 at an all-in sustaining cost of less than $800 per ounce. This was driven by the successful completion of Ahafo’s expansion projects. It is also expected to add annual gold production of 75,000-100,000 ounces per year from 2020 to 2024.

Higher Gold Prices

The coronavirus pandemic led to a surge in gold prices, driven by the demand for safe-haven investments. Further, declining oil prices and geopolitical tensions are triggering demand for gold.

Notably, the company’s average realized price of gold rose 20% year over year in fourth-quarter 2019 and boosted margins. Higher gold prices are expected to continue driving earnings in the near future amid market volatility and economic uncertainties.

Disciplined Capital Allocation Strategy

In March, Newmont successfully completed the sale of its Ontario, Canada-based Red Lake complex to Evolution Mining Limited for cash proceeds of $375 million. The transaction provided Newmont with an exposure to future exploration opportunities while focusing on its globally diversified portfolio of 12 managed operations and two joint ventures, including 8 world-class assets.

Considering the divestment of its interests in Continental and KCGM, Newmont generated total cash proceeds of more than $1.4 billion. The company attained its divestiture target of $1-$1.5 billion in less than a year.

Newmont expects the divestment of assets to support the continuation of its capital allocation priorities. This is also expected to strengthen the company’s investment-grade balance sheet and enable investment in highest-return projects along with returning excess cash to shareholders.

Estimates Going Up

Earnings estimate revisions have the greatest impact on stock prices. Annual earnings estimates for Newmont have moved up in the past month. Over this period, the Zacks Consensus Estimate for 2020 earnings has moved up 8.5%. The consensus mark for 2020 earnings is currently pegged at $2.43 per share, which suggests year-over-year growth of 84.1%.

Zacks Rank & Other Key Picks

Newmont currently carries a Zacks Rank #2 (Buy).

Few other top-ranked stocks in the basic materials space are Franco-Nevada Corporation (FNV - Free Report) , Novagold Resources Inc. (NG - Free Report) and Barrick Gold Corporation (GOLD - Free Report) , all currently carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Franco-Nevada has an expected earnings growth rate of 22% for 2020. Its shares have returned 43.9% in the past year.    

Novagold has an expected earnings growth rate of 11.1% for fiscal 2020. The company’s shares have surged 98.5% in the past year.

Barrick has an expected earnings growth rate of 41.2% for 2020. The company’s shares have gained 48.1% in the past year.

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