Gold investors finally have something to cheer about! After years of underperformance, gold has finally broke out to the upside.
For the first time in years, the S&P/TSX Global Gold Index beat the S&P/TSX Composite Index with annual returns of 39% in 2019. And considering the COVID-19 pandemic wreaked havoc on the global economy in 2020, gold had a very successful year as well, up 24.61%.
Considering gold makes up a ton of Canadian stocks on the TSX, it's important for the Index that they succeed.
Why has gold, and Canadian gold stocks in general, made a comeback?
Market volatility, especially with the stock market crash in 2020. We've seen Canadian tech stocks and gold stocks soar due to insecurities in the economy.
If you're new to buying stocks in Canada, you may not know that gold has long been considered a safe haven for investors in times of uncertainty.
In the face of recent volatility and uncertain geo-political environment, investors have begun to once again warm to the precious metal. This bodes well for the top gold stocks.
There is also another catalyst that can support gold’s price. Industry experts believe we reached peak gold in 2017, which means that moving forward, world gold extraction will decline. There has been a significant decrease in exploration and the lack of reserve replacements has experts leaning bullish.
So as a result, lets look at some of the best opportunities in terms of Canadian gold stocks in the market today.
What are the top Canadian gold stocks to buy right now?
5. Argonaut Gold (AR.TO)
We are starting the list with the smallest of the bunch (in terms of market cap) with Argonaut Gold (TSE:AR). The company has been among the best gold stock performers through the first six months with gains north of 10%.
It also happens to be very attractively valued. The company has forward PE of only 11, and a PEG ratio below 0.3 – one of the lowest in the industry. This is a sign that the company’s stock price is not keeping up with expected growth rates.
The company has three producing assets assets (El Castillo, La Colorado and Florida Canyon) with two more in development, including the much anticipated Magino project in Ontario. Construction is progressing well, and it expects to deliver first production in early 2023.
Argonaut is expected to grow production by 13% to 230K ounces at the mid-range in Fiscal 2021 while costs are expected to remain stable. It looks to reach 300-500K ounces over the next few years, while costs are expected to trend downwards – especially when Magino comes online.
The only drawback with Argonaut is higher-than average AISCs in the $1,200 range. The good news is that costs are expected to trend downwards. A big portion of that cost reduction will come from Magino which is targeted to average low AISCs of $711/oz in the first 5 years of operation.
Argonaut Gold 5 year performance
4. Barrick Gold Corp (ABX.TO)
From one of the smallest, to the world’s largest - Barrick Gold (TSX:ABX), is once again worthy of being among the top gold stocks in the country. The company has struggled in 2021 as Q1 production came in below expectations and was lower YoY. However, this was mainly due to planned maintenance, and the company expects second half production to outpace the first half.
Barrick is also making significant progress in reducing its debt. For the first time in years, the company has a negative debt to cash ratio.
That’s right, the company’s debt, net of cash is sitting at -$500M as of end of Q1. That is down from $3.5B only two short years ago.
Another interest aspect that many investors don't know about is that Barrick has exposure to copper. In fact, ~22% of production is copper and given the current copper bull cycle, Barrick is well positioned to benefit.
It is also worth noting that Barrick has recommitted to returning cash to shareholders. On top of having a mini three-year dividend growth streak, the company announced plans to return additional cash to shareholders via return of capital distribution. The first $250M tranche at $0.14 per share was announced in May along with its dividend of $0.09 per share.
The company expects to announce two additional $250M return of capital distributions by the end of the year. Those will be announced in August and November respectively. In total, it expects to return $0.42 per share to investors, which effectively gives it a forward yield of 3.5% - one of the highest in the industry.
The company’s merger with Randgold Resources was a positive and is expected to lead to stronger cash flows, cost savings and lower debt costs. It also led to an increase in its quarterly dividend.
Barrick Gold 5 year performance
3. B2Gold (BTO.TO)
Despite being include in our list a few times, B2Gold (TSX:BTO) hasn’t quite delivered to the extent we believed it would.
However, we can’t ignore the company’s valuation, growing production profile and lowering cost profile.
If the company has such an attractive profile, then why has it struggled? One of the main reasons is the fact the company was unable to renew its exploration license for the Menankoto property.
The Menankoto property forms part of the Anaconda area and is located close to the Fekola mine license area.
Fekola is one of the company’s low-cost, flagship assets that achieved commercial production in 2017. While the company is continuing to negotiate with the Mali government, it certainly puts a damper on the company’s outlook and does beg the question as to the safety of its Fekola mine.
These are the risks when investing in companies that have assets in less safe geo-political jurisdictions. That being said, the company has come out and said the Fekola mine has “not been affected in any way."
Recent price weakness has led to B2Gold being a value play. According to Ycharts, it is the top ranked gold stock in terms of valuation scoring a perfect 10 of 10. Accordingly, it is trading at a 25% discount to historical averages.
If you can handle a higher risk profile, B2Gold may offer the highest upside in the industry. Analysts have a one-year target of $9.50 per share which implies ~75% upside from today’s prices.
Also worth noting, since the Menankoto news, no analyst has downgraded the company and they remain strong believers and 14 of 16 analysts rate the company a buy.
B2Gold 5 year performance
2. Wesdome Mine (WDO.TO)
Wesdome Mine (TSX:WDO) has been one of the better performing gold stocks in 2021. Ranked fourth with returns just north of 12%, Wesdome caught many by surprise – except Stocktrades Premium members.
Wesdome has been feature in our Top 20 stock screener for some time now as the company blends growth and value. While it is not as cheap as it once was, it still has room to run.
The company is currently trading a 30% discount to historical averages and at a ~20% discount to its 52-week high of $15.00 per share.
Analysts have similar views, and the average one-year price target of $14.29 implies ~19% upside.
With 100% of assets located in Canada, it is one of the safest gold stocks to own in terms of geo-political risk. It has a fully funded capital program in which it looks to expand reserves at its two flagship properties: Kiena and Eagle River.
Kiena is expected to meaningfully contribute to production in the third quarter and is a key growth driver for the company. Kiena is expected to have average annual production of approximately 80,000 oz. It is also a low cost mine, with average AISCs of $675/oz.
Thanks to Kiena, total revenue is expected to grow by 55% next year and earnings should more than double. These are the highest expected growth rates among all mid-to-large cap gold stocks.
Wesdome 5 year performance
1. Franco Nevada Corp (FNV.TO)
Franco Nevada‘s (TSX:FNV) recent performance has justified its position as the number gold stock in the country. When the pandemic was causing mine shut downs, Franco Nevada’s business model was allowing it to outperform.
It continues to do so through the first half of 2021 and is one of only a few gold stocks in positive territory in 2021. It is by far the best performing large cap as its double-digit returns trounce the double-digit losses experienced by the majority of its large cap peers.
Why the big outperformance? As we’ve discussed many times before, Franco Nevada is a streamer and in a bearish environment, streamers will outperform producers. The first half of 2021 is yet another example of this.
Year in and year out, Franco Nevada is a pillar of consistency. While the company’s exposure to oil & gas has certainly helped during oil’s current bull run, it’s still very much a gold streaming play. Management aims to have 80% of its revenues come from precious metals.
The greatest advantage to owning a streaming company is that it is not saddled with the high costs of capital expenditures and operational mining costs. This allows the company to generate considerable cash flows.
While many gold stocks are now re-introducing dividends or have re-established themselves as dividend growth stocks, Franco-Nevada is the most reliable dividend growth stock in the industry.
\It was the only one to maintain its growth streak during the last bear market and is a Canadian Dividend Aristocrat having raised dividends for 12 straight years. That streak will be extended to 13 as the company raised the dividend by 15.38% this past May.
Reliability is key in this sector, and Franco Nevada is as reliable as it gets.