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It’s been a tough stretch for the gold market lately, ending the first quarter with a record high above the $2,000 dollar mark, closing at $1,800 in the second, and now declining to its lowest level at $1,700 during the year’s third quarter.

But unlike the major bull run in 2011 (with a record high at $1,900) where gold mining companies enjoying high valuation multiples ended up with out-of-control costs and poor acquisitions, today’s market executives seem to have learned their lessons. Generally, mining companies now have healthier balance sheets and have been more deliberate when it comes to acquisitions, resulting in better performance more likely. 

Even with constant pressures from aggressive monetary tightening and stronger dollar value, surprisingly, senior and mid-tier miners are averaging $1,200 on the capital needed to sustain current mining activities (“all-in sustaining costs in mining investing parlance). That enabled strong cash flow, resulting in share repurchases and dividends. 

Still, gold miners are trading at historically low levels compared to their cash flows as investors are weighing whether the market is truly transformed for the long run. Besides that, the market has been experiencing headwinds as commodity prices recede at their lowest mark while 10-year US Treasury yields reclaimed the pacing at 3% and aggressive interest rate hikes continue to dampen some demand.

Gold Mining Stocks Versus Physical Gold

gold nugget held by handBefore you make it to the list of the best performing mining companies, it’s worth mentioning that although the performance of mining stocks is determined by the price of the commodity, there’s a key distinction between investing in gold stocks and owning physical gold itself. 

The biggest difference is that gold mining companies realize cash flows where they can share buybacks and fund dividends. Gold stocks may also outperform gold when market prices increase because mining companies can rely on operating and financial leverage which can lead to higher free cash flows. 

Meanwhile, there are also certain advantages to physical gold that aren’t with mining stocks. For instance, gold is often bought by investors as a portfolio diversifier as it tends to move in the opposite direction from the equity market. Gold mining stocks, however, tend to have greater correlations with equity indexes, making them less attractive for diversification.

Fundamentally, gold acts as a safe-haven investment in times of economic and geopolitical uncertainty. It also offers a great hedge against a decline in dollar value by boosting demand for gold in other currencies. Because gold mining stocks essentially have these attributes as well, they do offer better value than other equities in times of skyrocketing inflation. In other words, higher inflation tends to spur higher gold mining stock returns as well. 

That said, if the stock market decline outpaces that of gold, investors could turn in droves towards more conservative investments like mining equities, value stocks, or precious metals. Such a possibility would support the gold stock market, which has struggled along with the commodity in the recent weeks

Here, we take a closer look at the three gold companies that have been holding best during inflation and offer investors great upside potential based on their historically stable gold prices, low valuations, and overall strong company fundamentals.

1. Barrick Gold Corp (NYSE: GOLD)

Barrick Gold Corp Logo

Trading over 14.5 million shares on the average trading session, Barrick Gold Corp stays true to its name as one the world’s best gold miner. Barrick showed promise in its first quarter performance, but was down to about 17% as of 15th of July.

The company’s gold AISC (all-in sustaining cost) was $1,164 per ounce, with gold production amounting to 990,000 ounces and net earnings of $463 million from its $2.85 billion revenues in the first quarter. Beating its 23 cents per share consensus estimate as it reported 26 cents per share in adjusted net earnings.

Despite the significant losses in the first half of the month, Wall Street seems to have a positive outlook for Barrick. TipRanks’ analyst rating consensus, estimates a Moderate Buy for the gold stock, based on 4 buys and 4 hold ratings. The average price target for Barrick Gold is $25.20, implying over 60% upside potential.

Looking forward, Barrick Gold is quite confident about delivering better results, “With a stronger performance expected in the second half of the year, Barrick remains on track to meet its 2022 production guidance,” the company assures its investors.

2.  Agnico Eagle Mines Ltd. (AEM)

Agnico Eagle Mines Ltd. logoWith revenues soaring over 40% year-over-year results, AEM beat its median projection by over $71.4 million earning over $1.3 billion in the first quarter. Analysts’ estimates fell short by 4 cents per share as it reported 28 cents per share in net earnings.

Despite these upbeat results, Agnico Eagle has experienced a downturn alongside its fellow gold stocks with recent interest rate hikes, down to more than 19% for the year-to-date.

Still, considering its historically premium valuation, the gold miner remains to be one of the best stocks for the rest of 2022.

With an average price target of $68.20, AEM has a potential upside of over 65%. Based on 6 buys and 1 hold rating on Tipranks, the gold is a strong buy.

3. Newmont (NYSE: NEM)

Newmont Logo

Boasting a market cap of more than $47 billion, Newmont leads the gold mining industry in terms of stock market valuation and production. Given its financial firepower, the company shows promise in expansion by developing new mines or buying up from other companies before currently operating mines reach depletion.

So far, Newmont delivered a solid performance in the first quarter with gold AISC of $1,156 per ounce. From over 1.30 million precious metal production the company earned $3 billion in revenues and netted $546.

However, quality, as well as size, is now an added criterion in the gold mining industry. Today’s gold stock market is now at the point where mining companies aren’t considered good just because of the extent of their production, they also offer value, says Imaru Casanova, deputy portfolio manager at Vaneck.

So far in the half of July Newmont has lost 11.8% in the trade, but compared to S&P 500’s 18.9% decline, Newmont is considered to have a better stance.

According to TipRanks’ analyst rating consensus, Newmont has 37% upside potential based on an average price target of $71.55.

Final Words

With gold prices now starting to steady at $1,700 an ounce, as supported by a recent fall in the dollar, it only makes sense for investors to dive while the value is there. However, gold still hovers at low levels since the March bull run, and will likely remain under pressure with Fed’s monetary tightening plans. 

That said, there’s no denying that investing in the commodity itself and the companies that mine can be a worthwhile endeavor. After all, plenty of investors have found wealth by leveraging on gold. 

However, it’s important to remember that not all gold stocks move in the same direction – as is the case with any form of investment. Make sure to do your research and keep updated with the news and expert opinion before diving into any investment plan.

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