This gold company is benefiting from Brexit, as well as coverage initiations and upgrades from three analysts: Initiated by Macquarie as ‘Outperform’; upgraded by Dundee to ‘Buy’; and upgraded by Raymond James to ‘Outperform.
Royal Gold (RGLD)
From Adrian Day’s Global Analyst
Royal Gold (RGLD) was my choice for Top Pick for 2016. In selecting a top pick, I look for a quality company, a depressed stock price, and a favorable industry trend. Royal Gold fit the bill.
It is a royalty company in the gold space, and as such avoids the risks and costs of actually mining; instead it finances companies and receives a percentage of the gold mined in exchange.
The stock price at the end of last year was extremely depressed, not only because the gold market was depressed, but because of concerns about the operator of the mine on which Royal Gold holds its largest royalty (Thompson Creek, owner of the Mt Milligan copper mine, where Royal has an interest in the gold by-product). The concern about Thompson Creek is real, though Royal’s interest is secured in the property itself, and Mt Milligan is one of the lowest cost large copper mines in the world. So the concern was overblown, and as the market started to appreciate that, the stock recovered, boosted by a favorable gold market.
Royal’s stock price has virtually doubled this year, but we believe it has further to go. A successful sale by Thompson Creek of Mt Milligan to a reputable operator will lay to rest those concerns, while gold, in my opinion, is likely to continue to move up throughout the year.
At its average five-year valuation, Royal Gold should be trading over $90, so it remains not only a hold, but a good buy.
Adrian Day, Adrian Day’s Global Analyst, www.adriandayglobalanalyst.com, 410-224-8885, June 29, 2016