5 Gold Stocks To Buy Despite Strong Jobs Data

Prices of gold suffered a considerable decline on Friday following a strong jobs report which led to a reevaluation of U.S. economic outlook by investors. Further, chances of a rate hike later this year increased, leading to heartburn for those betting big on safe-haven stocks.

However, the upside for gold remains since a variety of risks continues to hover on the horizon. Additionally, the path for U.S. rate hikes is still unclear. Meanwhile, mining stocks remain an attractive proposition because of the recent rebound in gold prices. This is why picking such stocks continues to make for an attractive proposition.

Jobs Data Ups Chances of a Rate Hike, Gold Prices Fall

The economy added 255,000 jobs in July, following an upwardly revised reading of 292,000 job additions for the month of June. Most estimates had put job additions for July at 180,000. Wages also increased for the second successive month after increasing in June (read: 5 Stocks to Buy on Encouraging Employment Data).

Encouraging job report in July increased chances of a Fed rate hike in September. As a result, gold prices suffered a sharp decline on Friday, losing around 2%. The fall in prices continued on Monday with prices tumbling to $1,329.55 an ounce at one point, the lowest level experienced since Jul 27. The trend remained unbroken on Tuesday for the safe-haven commodity which does not yield any interest.

Demand for Natural Hedge Remains

Despite the increasing prospects of at least one Fed rate hike this year, the global environment provides enough reasons for investors to opt for gold. The Bank of Japan and the central banks in Europe are inclined toward further monetary stimulus measures. Additionally, some degree of uncertainty continues to prevail over the chances of a rate hike.

Some market watchers believe that it would be unusual for the Fed to hike rates during the course of a Presidential campaign though there is no such precedent which could rule out a hike in September with the election scheduled for November. In the case of its December meeting, the Fed may not be inclined to disappoint markets around Christmas time.

Mining Stocks Still Attractive

Despite the yellow metal’s recent fall, prospects for gold miners continue to remain bright. These stocks had been rather unattractive over the last five years since falling gold prices were eating into profits. However, gold mining companies have provided considerable returns this year at low levels of risk.

This is because gold has regained its luster this year, manifested by a near 25% surge in its value in the first half. The yellow metal’s bull run is a function of a combination of factors, notably the Fed’s decision to keep rates steady in its June meeting and strong tailwind from Britain’s historic decision to leave the EU (read: 4 Gold Mining Stocks That Surged More than 50% This Year).

Other factors have also contributed toward making mining stocks attractive. Given the downturn experienced over the last five years, particularly over 2015, gold mining companies had undertaken several cost-saving initiatives which have borne fruit. Gold miners are of course tied to gold prices and operationally their earnings will improve faster than the gold-price rally. Both these factors have helped to boost such stocks.

Our Choices

Despite recent encouraging jobs data, the path of interest rates is still unclear even though the odds of a rate hike being undertaken this year have increased. This is because not all U.S. economic indicators have been positive in nature. Additionally, global risks continue to remain a headwind for investors, making them opt for a natural hedge.

Meanwhile, the attractiveness of gold mining companies remains, which is why it makes good sense to add them to your portfolio. At the same time, it is important to pick winning stocks.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

AngloGold Ashanti Ltd. (NYSE:AU) is based in South Africa and involved in gold exploration and mining activities.

AngloGold Ashanti has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 19.89, lower than the industry average of 30.20.

IAMGOLD Corp. (TO:IAG) is engaged in the exploration, development and operation of gold mining properties.

IAMGOLD has a Zacks Rank #2 (Buy) and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by more than 100% over the last 30 days.

Harmony Gold Mining Company Limited (NYSE:HMY) conducts underground and surface gold mining. It is also engaged in related activities such as exploration, processing, smelting and refining

Harmony Gold Mining Company has a Zacks Rank #2 and a VGM Score of A. It has a P/E (F1) of 6.00, lower than the industry average of 30.20.

Newmont Mining Corporation (NYSE:NEM) is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia/New Zealand and Ghana.

Newmont Mining Corporation has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 51.4% for the current year. Its earnings estimate for the current year has improved by 14.5% over the last 30 days.

Kinross Gold (NYSE:KGC) is primarily involved in the exploration and operation of gold mines.

Kinross Gold has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by more than 100% over the last 30 days.