With gold under-performing in the last few months, even the best gold stocks have been sideways to lower. However, the sentiment for gold seems to be changing. There are growing concerns related to inflation. It’s very likely that the current inflationary trend in the United States is not transitionary in nature.
Gold finally seems to be on the verge of a break-out. The precious metal is considered as a good hedge against inflation and I believe gold is positioned to make new highs in the coming quarters.
To further elaborate on my point on inflation, assets on the Federal Reserve’s balance sheet expanded from $4 trillion in November 2019 to current levels of $8.7 trillion. This is a clear indication of aggressive expansionary monetary policies. The surge in inflation is therefore not surprising.
Another interesting point of discussion is Bitcoin (CCC:BTC-USD), which has also emerged as a potential hedge against inflation. Money is likely to flow into gold and Bitcoin in 2022 if inflation remains high. However, considering the liquidity glut in the financial system, there seems to be ample upside potential for the precious metal.
Let’s therefore talk about the four best gold stocks to buy for 2022:
- Newmont Corporation (NYSE:NEM)
- Kinross Gold (NYSE:KGC)
- Barrick Gold (NYSE:GOLD)
- AngloGold Ashanti (NYSE:AU)
Gold Stocks to Buy: Newmont Corporation (NEM)
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In May 2021, NEM stock touched highs of $75.30. However, with near-term weakness in gold price, the stock has corrected. I believe that current levels are attractive for fresh exposure.
It’s also worth noting that NEM stock has an attractive dividend yield of 3.8%. Even if gold trades in the range of $1,800 to $2,000 an ounce, dividends are sustainable.
From an asset perspective, Newmont reported 94 million ounces of gold reserves and 101 million ounces of resources. The asset base is likely to ensure that the company can sustain stable production through 2040.
Newmont Mining also has a quality balance sheet. As of Q3 2021, the company reported $4.6 billion in cash and equivalents. Further, for the quarter, the company reported free cash flow of $715 million. Therefore, even at current gold price, the company is positioned for annualized free cash flow of $2.8 to $3.0 billion.
Another point to note is that Newmont has guided for an all-in-sustaining-cost of $1,050 an ounce for 2021. In the next few years, the company expects the AISC to decline further. Therefore, even if gold price remains sideways, the company has higher EBITDA margin visibility.
Overall, with a strong balance sheet and a quality asset base, NEM stock looks positioned for a rally. In particular, with inflation likely to be a catalyst for gold price upside.
Kinross Gold (KGC)
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In the last one-month, KGC stock has trended higher by 14%. I believe that the rally is likely to sustain for the stock considering the growth visibility and gold price outlook.
Recently, Kinross Gold reported Q3 2021 results and there are two important points to note.
First and foremost, the company reported a total liquidity buffer of $2.1 billion. With strong financial flexibility, the company is positioned for aggressive expansion and sustaining dividends.
Furthermore, Kinross has reiterated the growth guidance for the coming years. For the current year, the company expects production of 2.1 million ounces of gold. Production is expected to increase to 2.7 million and 2.9 million ounces in 2022 and 2023 respectively.
Clearly, the company is positioned for healthy top-line growth in the next few years. At the same time, if gold trends higher, Kinross is positioned to deliver robust free cash flows.
It’s also worth noting that for 2021, Kinross has guided for an all-in-sustaining-cost of $1,100 an ounce. Similar to Newmont Mining, the company is positioned to deliver healthy EBITDA margin even if gold trades sideways. However, I do expect gold to trend higher after an extended period of consolidation.
Overall, KGC stock looks attractive with production growth visibility. At the same time, dividends are likely to increase in the coming years as free cash flow swells.
Gold Stocks to Buy: Barrick Gold (GOLD)
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At a forward price-to-earnings-ratio of 18.4, GOLD stock is another attractive name to consider. In the last 12-months, GOLD stock has trended lower by 17%. I would not be surprised if this trend reverses in 2022 and the stock is a performer.
For Q3 2021, Barrick reported revenue of $2.8 billion and adjusted EBITDA of $1.7 billion. For the same period, the company’s free cash flow was $481 million. Barrick is therefore positioned for annualized FCF in excess of $2 billion if gold trends higher. In particular, with AISC likely to be in the range of $1,000 to $1,200 an ounce.
It’s also worth noting that as of Q3 2021, Barrick reported cash and equivalents of $5 billion. With a net-debt position of just $111 million, the company has an investment-grade balance sheet. This provides ample financial flexibility to pursue aggressive exploration and production growth.
In terms of production, the outlook is relatively stable for the next few years. However, considering the company’s financial flexibility, I would not be surprised if acquisitions are pursued to boost growth. At the same time, there is visibility for dividend growth if gold trends higher.
AngloGold Ashanti (AU)
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On a relative basis, I would prefer the other three names over AU stock. However, if gold price does trend above $2,000 an ounce, the stock will be positioned for a strong rally.
It’s worth noting that for Q3 2021, AngloGold reported an AISC of $1,362 an ounce. This is higher compared to peers. However, the company still reported an adjusted EBITDA margin of 47%. At the same time, free cash flow for the quarter was $18 million at a realized gold price of $1,785 an ounce. AngloGold has been focused on lowering costs through asset diversification.
From a balance sheet perspective, AngloGold reported cash and equivalents of $2.5 billion. With a net-debt-to-adjusted-EBITDA of 0.43, the company is well positioned to pursue aggressive exploration and production upside.
At the same time, AngloGold is likely to pursue acquisition driven growth. In September 2021, the company reported the acquisition of Corvus Gold. This gives the company access to a Tier 1 production opportunity in Nevada.
Overall, at a forward P/E of 12.5, AU stock looks attractive among gold stocks. If gold continues to trend higher, the stock is likely to witness a sharp rally.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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