Golden Trio: Goldcorp, New Gold & Kirkland Lake

11/20/2017 5:00 am EST

Focus: COMMODITIES

Jack Adamo

Editor, Jack Adamo's Insiders Plus

Jack Adamo—a leading growth and income expert—has reiterated his buy recommendations for a trio of gold mining stocks. Here's the latest update from Insiders Plus newsletter.

Goldcorp (GG) had a great Q3 earnings report. Be advised that this is still an expensive stock based on current earnings. The expected end-of-year P/E is 30.

However, in the past decade and a half, gold miners have consistently been expensive before a big run-up in earnings and price. Expected earnings growth in 2018 is more than 18%. How much of that is GAAP and how much is "adjusted" I don't know, but earnings growth should be significant in either case.

In the third quarter, GAAP earnings per share rose 85.7%, despite 5.4% lower revenues, a $49 million swing in income taxes and 1.6% more shares outstanding. These results were achieved primarily through excellent operating expense management, as has been the case since the new CEO came on board.

The company has had a long road back from its troubles, but he has led it well. I want to increase our position while the turnaround is still in progress. The stock is a buy up to $14.

The market had a negative response to third quarter earnings from New Gold (NGD), pushing the shares down 5.4%. But, although results were not as good as I'd hoped, I'm fine with them. The story will improve significantly in the fourth quarter.

During the July conference call, management said it expected a weak third quarter followed by a strong fourth quarter, when the Rainy River mine is in full operation. The mine came on line toward the end of Q3, but none of its production was available for that quarter. It will be in the fourth quarter.


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I had been a little disappointed in the initial grades mined at Rainy River, but that's just from the first few weeks of work. There's a good chance we'll get better results by year-end.

In any case, the company expects the final quarter to show earnings per share about double that of the recent quarter, so that should finish the year strongly and boost the stock price.

My only reservation about the report was that a significant amount of income came from currency translation, which can be quite volatile quarter to quarter, so that's an x-factor. But core earnings should be reliable enough to offset much of the variance there, if needed. New Gold is a buy up to $4.20.

Meanwhile, we got a stellar earnings report from Kirkland Lake Gold (KL), and the market acknowledged it with a 10.5% bump in the stock.

Despite a large increase in its exploration budget, a nearly 7-fold increase in income taxes, and an 82% rise in the share count (due to its merger earlier in the year), net EPS rose 25%, propelled by a 76% rise in revenues.

There are also some items in Comprehensive Income that may be reclassified as earnings in the standard earnings statement. If that happens, that could almost triple the quarter's results, though it would show up in a future period. These shares are on the move and rate a buy up to $14.

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