Gold has been among the performing asset classes in the first quarter of 2023. The precious metal trades above $1,950 an ounce and looks strong for further gains in the coming quarters. With the upside in gold, investors can look at some attractive gold stocks to buy.
Before talking about gold mining stocks, let’s briefly discuss the reasons to remain bullish on gold. The crisis in the financial sector is a major reason, as investors seek refuge in safe assets. Inflation has been stubborn, and a recession seems likely. All these factors support the bull thesis for gold.
I also believe that central bankers might shift to expansionary policies if there is a deep recession. This scenario seems likely in the second half of 2023. Expansionary policies would imply a weak dollar and a rally for gold and other asset classes.
It’s therefore a good time to consider exposure to gold stocks that are trading at attractive levels. These stocks are poised for a meaningful rally and I also expect healthy dividend growth in 2023.
Let’s take a deeper look into these gold stocks to buy.
Newmont Corporation (NEM)
With the recent upside in gold, Newmont Corporation (NYSE:NEM) stock is higher by 19% in the last six months. NEM stock trades at an attractive forward price-earnings ratio of 22.8 and offers a dividend yield of 3.3%.
Newmont has an investment grade balance sheet and ended 2022, with a total liquidity buffer of $6.7 billion. Last year, the company delivered free cash flow of $1.1 billion. If gold trades near $2,000 an ounce, I believe FCF is likely to be around $2 billion. Therefore, Newmont has headroom for healthy dividend growth in 2023.
Looking beyond this year, Newmont has a robust asset base with 96 million ounces in proved reserves. The company expects to sustain stable production through 2040s.
Assuming a scenario where gold remains in an uptrend, the company is a cash flow machine. Further, Newmont expects to lower all-in-sustaining-cost in the coming years. Even with sideways gold price, the company will be positioned to report healthier EBITDA margin.
Barrick Gold (GOLD)
Barrick Gold (NYSE:GOLD) stock is another quality name among gold stocks to buy for 2023. The stock has been in an uptrend in the last six months and offers a dividend yield of 2.2%.
As an overview, the company currently has six tier one gold assets with a reserve base of 72 million ounces. A robust asset base provides clear cash flow visibility for the long term.
Last year, Barrick Gold reported $3.48 billion in operating cash flows. For the current year, I expect OCF in excess of $5 billion if gold remains above $1,900 an ounce. The company is therefore positioned to increase shareholder rewards.
An important point to note is that Barrick Gold has guided for an all-in-sustaining-cost of $1,170 to $1,250 an ounce for 2023. If the AISC remains around these levels with gold trending higher, significant margin expansion is likely in the coming years. GOLD stock is therefore attractive even beyond 2023 and, with a strong balance sheet, share buyback is also likely to remain aggressive.
Kinross Gold (KGC)
Among smaller names in the gold mining industry, Kinross Gold (NYSE:KGC) looks attractive.
KGC stock has trended higher by 34% in the last six months and offers a dividend yield of 2.7%. At a forward P/E of 17.3, the stock remains undervalued.
In terms of business fundamentals, there are two important points to note. First, Kinross ended 2022 with a strong liquidity buffer of $1.8 billion. Further, the company reported free cash flow of $157 million for Q4 2022. Considering the upside in gold price, Kinross is positioned to deliver FCF over $700 million for 2023.
Another key point is that even with some asset sale in 2022, Kinross has a stable production visibility through 2025. With cash flow upside coupled with production visibility, Kinross is positioned to increase dividends and pursue share repurchase.
I would also not be surprised if the company pursues inorganic growth. This will compensate for the sale of Russian assets for geopolitical reasons.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.