The Best-Performing Gold And Precious Metal Stocks – April 2020
It’s been a difficult year for gold mining stocks. Even as gold is up 9% year to date and now trading near an eight-year high, miners have significantly underperformed with the benchmark VanEck Vectors Gold Miners ETF (GDX) down 11% year to date or 19% from its recent high reached in February. Since the emergence of the COVID-19 pandemic and the acceleration of the global outbreak in March, miners have been caught up in a financial contagion-type trade, selling off with the broader equity market in a risk-off environment. While this episode highlights an important attraction of trading the commodity price of gold which may have benefited more from its safe-haven attributes in a market stress scenario, we still think miners can outperform to the upside going forward.
This article looks at the bullish case for gold through a list of the 50 best-performing mining stocks in 2020. While most stocks in the group are gold producers, the list also includes miners focused on other precious metals like silver, platinum, and palladium. We use a market cap of $100 million as a filter in the result. We highlight some key observations below and our view on where the group is headed next.
Best-Performing Precious Metals Miners
The table above is sorted by the performance of the miners based on their year to date return through April 6th, 2020. We also include the corresponding trailing 1-month, 6-month, and 1-year performance along with the return from their respective 52-week high and low.
As mentioned, it has been a difficult 2020 for the miners with only eight stocks posting a positive return this year thus far. From the 50 in the group above, the average stock is down by 33% from their 52-week high but at the same time up 90% from their respective 52-week low corresponding to the volatile environment.
The big theme here is that large-cap miners have generally outperformed in this environment. Newmont Corp. (NEM), Barrick Gold Corp. (GOLD), and Franco-Nevada Corp. (FNV) are each up 15.6%, 10.9% and 7.2% year to date respectively. It’s likely the market is adding a quality premium to these players given their larger scale and stronger balance sheets. Each of these stocks also pays a small dividend which yields about 1%.
South Africa-based DRDGold Ltd. (NYSE:DRD) with a market cap of $597 million is the top-performing gold miner this year up 37.3% year to date. The big news here came in January when it was reported that palladium and platinum mining giant Sibanye Stillwater Limited (NYSE:SBSW) added a stake in the company to now control 50.1%. The funding supports DRD’s early-stage development of a new project which will add to its existing gold output. DRD is also the best-performing stock from the group over the past year, up 271%.
We recently covered Gold Fields Ltd. (GFI) with a bullish article here on Seeking Alpha. While the stock is down 10% in 2020, GFI benefits from upside in gold production, a strong balance sheet, and current profitability. We also like Centerra Gold. (OTCPK:CAGDF) which trades at an attractive valuation.
We also note that the world’s largest producer of palladium, Norilsk Nickel PJSC “Nornickel” (OTCPK:NILSY) with a market cap of $40.9 billion, is down 15.2% year to date. The commodity price of palladium reached $2,800 per ounce earlier this year supported by a market deficit for the metal amid high demand for its use in catalytic converters. Since automobile production is shut down in most parts of the world since the COVID-19 pandemic, demand concerns have weighed on the commodity price and pressured the stock.
Palladium crashed to as low as $1,400 per ounce in March but since recovered some to currently trade at $2,100. We take a more cautious view on palladium within precious metals seeing these demand headwinds and global recessionary conditions as a headwind for the industrial demand usage.
Analysis And Forward-Looking Commentary
We remain bullish on precious metals overall while favoring high-quality gold and silver names. We believe the current macro environment is very bullish for gold which should lead to a recovery in the broader group of mining stocks which are naturally leveraged to the upside as primary producers. We favor high-quality names with strong balance sheets and positive production growth.
The ongoing pandemic represents a major worldwide disruption that has forced policymakers including governments and Central Banks to take aggressive stimulus efforts to help stabilize the economies. Gold is benefiting as a safe have asset with its value supported by the trend in lower interest rates that could begin to pressure the U.S. dollar. Forecasts of a looming global recession and significant uncertainty going forward supports sentiment towards precious metals as an investment.
To the downside, we’re watching the March lows in gold around $1,450 and silver at $12.00 per ounce as important support levels. Given the recent momentum higher, we think it’s unlikely those prices will be retested but nevertheless a break lower would force a reassessment of our thesis. To the upside, $2,000 per ounce in gold is our near-term price target. In this scenario, we expect the mining stocks to recover any recent losses and potentially reclaim their highs from 2019.
We hope the list above serves as a good starting point for further research particularly among some of the smaller stocks that are less well-known. The allure of investing in individual miners is the significantly higher return potential compared to a commodity tracking fund in a bullish environment. Keep in mind that mining stocks can be high risk so we recommend diversifying across multiple companies and averaging into a position.
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Disclosure: I am/we are long GDX, GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: long various gold miners in personal account