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Get Exposure To Gold With These 2 Leaders

While 2022 was a year to forget for the major market averages, the Gold Miners Index (GDX) managed to claw its way back from significant underperformance to finish the year down just 10%, outperforming the S&P 500 (SPY) by 1000 basis points.
Fortunately for investors in the gold space, we’ve seen follow-through to this outperformance to start the new year, with the GDX up 13% year-to-date and back into positive territory on a 1-year trailing basis.
However, while the index may be up sharply off its lows and gold miners are outperforming most stocks, this doesn’t mean that any miner can be bought on dips, and a few have become expensive and increasingly risky now that they’re up more than 50% off their Q3 2022 lows.
In this update, we’ll look at two names that continue to fire on all cylinders and are much safer ways to buy any upcoming pullbacks in the space, given their operational excellence, attractive dividend yields, and superior diversification vs. their peer group.

Let’s take a closer look below:
Agnico Eagle Mines (AEM)
Agnico Eagle Mines (AEM) is the world’s third-largest gold producer and has been one of the busiest companies in the sector from an M&A standpoint.
In Q1 2022, the company closed its merger with the 9th largest gold producer globally, Kirkland Lake Gold, and is now in the process of acquiring Yamana Gold’s Canadian assets in a two-way acquisition with Pan American Silver (PAAS).
The result of these two acquisitions is that the company will grow into a ~3.9 million-ounce producer by 2024 (assuming the Yamana deal closes), placing it just behind Barrick Gold (GOLD) for the #2 spot among the world’s largest gold miners.
The result of this M&A activity is that Agnico Eagle now has ten mines in the safest mining jurisdictions globally (up from seven previously) and will gain the other 50% ownership of one of its largest gold mines in Quebec if the Yamana deal closes.
Plus, while Agnico Eagle may not be the largest gold producer, it is one of the top-6 lowest cost gold producers globally with all-in-sustaining costs below $1,000/oz and has one of the best pipelines in the sector, sitting on multiple world-class assets with some able to leverage off existing infrastructure, resulting in lower capital expenditures and benefit from synergies.
One example is Upper Beaver in Ontario, which sits in the same camp as its newly acquired Macassa Mine, a gold-copper project that could enjoy industry-leading margins due to by-product credits.
Another is its recently acquired Wasamac Project, a high-grade underground project in the Abitibi Region of Quebec that could potentially provide ore feed for mills in the region with excess capacity.
Finally, while the San Nicolas Project that it partnered on with Teck may not have clear synergies, this is one of the highest-margin VMS deposits globally, and it should enjoy 60% plus margins at current commodity prices.
Given Agnico Eagle’s unique position with multiple assets in safe jurisdictions and a development pipeline that could allow the company to grow production to 5.0+ million ounces per annum without any further M&A, I see the stock as one of the best ways to get exposure to gold.
This is especially true given that few million-ounce producers offer meaningful growth, which is related to the fact that it’s harder to grow once miners reach a certain scale.
Plus, Agnico Eagle can be considered a “sleep well at night miner”, operating out of Canada, Finland, Australia, and Mexico – which are ranked the safest jurisdictions globally.
So, while I have no plans to add to my position here at $58.00, I would view any sharp pullbacks in the stock as buying opportunities.
Barrick Gold (GOLD)
Barrick Gold (GOLD) is the world’s second-largest gold producer and owns the most Tier-1 scale (500,000+ ounces of production per annum) among its peers, but the stock has seen lifeless share-price performance over the past decade.
This can be attributed to the company’s heavy debt under its previous management, evidenced by net debt of more than $10 billion during the 2011-2015 secular bear market for gold.
The weaker balance sheet forced the company to divest some assets at the worst possible time, and the unfavorable position of being leveraged in a secular bear market earned Barrick the title of being of the worst-performing gold producers.
However, following the merger of equals with Randgold in 2018, the company’s new CEO has done an incredible job turning the company around.
Not only does the company have a net cash position today, but it has an attractive dividend yield of more than 3.0% and is aggressively buying back shares, regularly buying back over 1 million shares per week in Q3 and Q4.
Meanwhile, from an operational standpoint, its new CEO Mark Bristow has turned around several of its operations.
One major example is the agreed-upon joint venture in Nevada to take the borders off its operations and allow for synergies to make both its operations and Newmont’s operations much leaner.
Unfortunately, we haven’t seen the fruits of this hard work from a headline standpoint, given that Barrick’s production has declined since 2019, and its costs have risen sharply due to inflationary pressures.
Fortunately, this will change in 2023, with production hitting a major trough in 2022 at 4.14 million ounces but with growth to ~5.0+ million ounces by the end of the decade.
This growth will come from multiple assets, and costs are expected to drop by more than $200/oz in the same period as we see several assets optimized and lower-cost assets come online.
The result is that Barrick is finally investable and trades at a reasonable price, given that the stock remains stuck in a multi-decade downtrend.

Based on what I believe to be a fair cash flow multiple of 10.0 and FY2023 cash flow per share estimates of $2.35, I see a fair value for Barrick of $23.50, pointing to an 18% upside from current levels.
However, this assumes that we don’t see further strength in copper and gold prices, which could push its price target closer to $25.00.
At a current share of $19.80, this doesn’t translate to enough margin to rush into the stock just yet, given that I prefer a minimum 25% discount to fair value. However, if we were to see GOLD pullback below $17.70, I would view this as a buying opportunity.
Although Agnico Eagle Mines and Barrick Gold are two best-of-breed names in the sector, I have never seen much value in chasing rallies, so I have no plans to add to my positions in either stock here, given that they’ve had a nice run.
However, if we saw a sharp pullback in these names to unwind their current overbought conditions, I would view this as a buying opportunity.
Hence, for investors looking for exposure to gold, I believe these are two liquid leaders with generous shareholders returns that should be at the top of one’s watchlist.
Disclosure: I am long GOLD, AEM
Taylor DartINO.com Contributor
Disclaimer: This article is the opinion of the contributor themselves. Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information in this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying small-cap precious metals stocks, position sizes should be limited to 5% or less of one’s portfolio.

Investors Alley by TIFIN

Rio Tinto is Paying Off Big-Time for Investors

In perhaps the most famous line from the mid-1980s television show The A-Team, A-Team leader Colonel John “Hannibal” Smith (George Peppard) often said: “I love it when a plan comes together”.

Apparently, Hannibal Smith retired from the A-Team to join the executive team at the global mining giant, Rio Tinto PLC (RIO), because the company’s strategic moves over the past few years are really starting to come together. Long-term decision-making and some smart acquisitions are providing a strong growth path for the miner.

And you can still get in.

Production guidance for 2023, released in mid-January alongside Rio Tinto’s fourth quarter output numbers, shows increased output for iron ore, copper and alumina/bauxite. And the company is moving quickly to build a lithium test plant at the Rincon mine in Argentina, which it bought last year—a really important move for Rio Tinto’s future.

RBC analyst Tyler Broda recently agreed that the company’s long-term planning was bearing fruit. He told clients that “The company’s portfolio has some compelling options and, unlike the other majors [mining firms], offers growing lithium exposure.”

I believe lithium will become a bigger part of the company’s future.

Rio Tinto signed a memorandum of understanding with Ford in 2022 that could result in the carmaker becoming a flagstone customer for the miner’s Argentine lithium supply. As the company’s CFO, Peter Cunningham, said: “Critical minerals is clearly important from a policy perspective for many governments [and companies] for security of supply.”

Rio Tinto Guidance

Rio Tinto is already an extraordinary company and organized into four segments: iron ore (65% of first half 2022 EBITDA), aluminum (18%), copper (9%), and minerals (8%). The minerals division produces salt, borates, mineral sands, and diamonds.

What really impressed me was the company’s exceptional fourth quarter results and its raised guidance. Rio Tinto’s 89.5 million tons of iron ore production translates to annualized production of nearly 350 million tons. Guidance for 2021 was at 320 million to 335 million tons. The company held onto 2022 cost guidance, and more specific numbers will be released next month. I suspect iron ore guidance will be raised at that time.

Rio Tinto hiked another key metal—copper— for 2023, to between 650,000 tons and 710,000 tons after the company bought out the minority investors in the Oyu Tolgoi holding company Turquoise Hill Resources for $3 billion. Copper production last year for Rio Tinto was 521,000 tons.

For those of you unfamiliar with Oyu Tolgoi, it is located in the South Gobi region of Mongolia and is one of the world’s largest known copper and gold deposits. At peak production, Oyu Tolgoi is expected to produce 500,000 tons annually of copper.

Why Buying Rio Tinto is a Good Idea

Argus Research summed up nicely why Rio Tinto is a buy: “Rio Tinto has strengthened its operating performance and balance sheet by cutting costs and selling non-core assets. It also continues to return cash to shareholders through dividend increases. Despite the recent drop in commodity prices, we note that Rio has traditionally performed well during difficult economic times, and, in our view, has strong long-term growth opportunities.…On the fundamentals, Rio’s ADRs are trading at 7-times our 2022 EPS estimate, well below the five-year average.”

I would add that the expected full reopening of China’s economy after several years of coronavirus pandemic-related lockdowns will boost demand greatly for what Rio Tinto and other miners produce. China accounted for about 60% of Rio’s sales in 2021.

And Rio Tinto has a large portfolio of long-lived assets with low operating costs. That means it is one of few miners that can remain profitable throughout the commodity cycle. Most of its ore sources come from operations located in the safe havens of Australia and North America.

Rio Tinto pays a regular dividend twice a year, in April and September, and often also pays a special dividend. Management’s target payout ratio is 40% to 60% of underlying earnings.

The 2018 dividend was $4.08, or $3.08 from the regular dividend plus a $1.00 special dividend. The 2019 dividend was $4.43, including a regular dividend of $3.82 and a special dividend of $0.61. In 2020, it paid a regular dividend of $4.64 and a special dividend of $0.93. In 2021, it paid total dividends of $13.49 per share.

Dividend estimates are $8.00 for both 2022 and 2023. However, with China reopening, commodity prices are likely headed higher in 2023. This will boost the fortunes of Rio and other miners.

I suspect the dividend for 2023 will be closer to $10.00 per share. But even if it does come in at $8.00, the dividend yield would still be in excess of 10% based on the current stock price.

Rio Tinto is a buy anywhere in the $70s per share.
That’s what my old coworker told me years ago. I listened up because he was the most successful broker I ever worked with. And also incredibly lazy. He found a small niche in the market no one talks about and made enough to buy in the most expensive zip code in Maryland. Here’s what he invested in.

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Airline Stocks in 2023: 3 to Buy and 1 to Avoid

Despite growing economic uncertainties, the International Air Transport Association (IATA) expects the global airline industry to finally return to profitability in 2023 and post a net profit of $4.70 billion, the first profit since 2019. This indicates that the industry remains upbeat about travel demand. A recent IATA poll of travelers in 11 global markets …

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INO.com by TIFIN

Treasury Default Hysteria Begins

While fights over Supreme Court and Federal Reserve Board nominations come sporadically as vacancies arise, there is one political battle we can almost always count on from year to year, and that is the struggle over extending the federal debt ceiling.
If it’s not increased, we’re told, the U.S. government will default on its obligations, Social Security and other government program beneficiaries will be rendered destitute, Treasury bondholders will see the value of their holdings decimated as they go without their interest payments, our soldiers and other government employees won’t get paid, and the global financial system will grind to a halt.
Most serious-minded adults, however (I hope), have learned to ignore this annual game of chicken that the White House and Congress insist on playing every year, although the financial press and media commentators profess to take it seriously.
Whichever political party controls the White House or the houses of Congress, the drama generally follows the same predictable format, namely the Democrats always favor raising the debt ceiling to avoid the catastrophes described in the first paragraph, while the Republicans express opposition in the name of fiscal responsibility.

Yet no matter how long the drama plays out, the outcome is always the same: the Republicans eventually knuckle under, life goes on and everyone gets their money, until the next debt debacle. Lather, rinse, repeat.
This year, it seems, the play has begun early.
Five whole months before the government allegedly runs out of money without a debt limit increase, Treasury Secretary (and former Fed Chair) Janet Yellen has already sounded the alarm and instructed her troops to put in place “extraordinary measures” to allow the government to keep paying its bills before it hits the current $31.4 trillion debt limit in June.
Yellen wasted no time in using the dreaded D-word to emphasize the supposed seriousness of the situation.
“A failure on the part of the United States to meet any obligation, whether it’s to debtholders, to members of our military or to Social Security recipients, is effectively a default,” she said. 
She also quickly dismissed suggestions that should the debt limit not be raised in a timely fashion the Treasury would be able to prioritize payments to recipients, be they bondholders, senior citizens or soldiers.
“The Treasury’s systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” she said last week.
I find that a little difficult to believe — every computer system in the world can be modified to accommodate some hiccup or another — but her comment went unchallenged.
One thing I’ve always found amusing about the whole annual debt limit-default drama is the market’s reaction to it, which is generally no reaction at all or the one you would least expect to happen, namely investors rushing to buy the very instrument that is supposedly being defaulted on, i.e., Treasury bonds.
If you knew a country or a corporation might default on their debt obligations, your first instinct would be to avoid them, wouldn’t it?
Yet, the closer we ostensibly get to a U.S. government default, the market reaction is to buy Treasuries, under the time-honored flight to safety.
That alone should tell you how seriously to take all this. No sensible person believes — or should believe — that the U.S. government is going to default, no matter how much scare talk comes out of Washington. Ain’t gonna happen.
But stay tuned. We’ll no doubt be hearing more about this as doomsday approaches. Try not to let it disturb your sleep or influence your financial decisions.
Meanwhile, we have a Fed meeting announcement to prepare for next Wednesday.
Compared to the Fed’s 2022 meetings — during which it raised interest rates seven times by a total of 425 basis points — next week’s meeting should be relatively uneventful and fairly predictable.

That is, we can probably expect the Fed to raise its federal funds target by another 50 bps, the same increase as the one at its previous meeting in mid-December following four straight 75 bp hikes. That would bring the fed funds rate to 4.75%, or close to where most people believe the Fed will end up.
Given the recent softening in the labor market and moderation in the inflation rate, it certainly could be argued that the Fed should reduce the increase to 25 bps, although that doesn’t seem likely to happen.
The Fed doesn’t want to send the message that it is losing its zeal to drive down inflation to its 2% target and giving in to just about everyone else clamoring for the Fed to at least pause its rate increases.
Even a 25 bp hike would be seen as the Fed giving into pressure, so a 50 bp increase seems the most likely outcome, whether warranted or not.
George YacikINO.com Contributor
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Investors Alley by TIFIN

How to avoid big drawdowns in your portfolio in 2023

Last year, if you held your stocks…

You’re likely sitting on double-digit losses over a 12-month timeframe. 

Drawdowns in your portfolio can be crippling to your future wealth and income. 

If you lose 50% of your portfolio… it requires a 100% return to get back to even. 

As you can imagine, losing 50% is much easier than making 100%. 

I talk a little about this phenomenon today in my free weekly video. 

It’s only 3 minutes long, but I discuss this topic…

But, as a bonus, I share what investment YOU MUST buy in this market that’s almost risk-free. (that bonus is at the end). 

Hint — it’s NOT a stock.

Click here to learn more about avoiding drawdowns and what asset to buy now, 
If you’re not doing this in your portfolio right now…You could be missing out on $5,900 per month in retirement.I’m not referring to some new dividend strategy…And this does NOT involve forex or anything complicated or risky like that.But this “Recession-proof” strategy can generate up to $5,900 per month… in up markets… down markets… and anything in between.Click here to learn how to collect up to $5,900/month.

Investors Alley by TIFIN

The World’s Best Investors You’ve Never Heard Of

You’ll see them every year, right after all the market predictors are done with their end-of-year foolishness: countless articles that advise you to buy what the world’s best investors are buying.

The problem is that most of those advising you to “buy what the world’s best investors are buying” have no idea who the best investors are right now.

Warren Buffett is always mentioned. While it is true that Warren has one of the best long-term track records of all time, his public portfolio returns could have been better over the last two decades.

As for the investors who have ­actually had the best returns lately, you may not have heard of them – or where they’re putting their money…

It’s not that following in Buffett’s footsteps wouldn’t have been fine. Owning Berkshire Hathaway’s (BRK-A) top 20 holdings with the same portfolio weight that Warren has given them, each stock has earned 8.97% annually since 2001. The returns increased to 9.92% annually over the last ten years, and while that beats the S&P 500’s 7.30% over the same time frame, it is not a best-in-class return.

Carl Icahn’s name will also come up. And Icahn is, in fact, one of the greatest investors of all time—studying every deal he has done since the 1970s would give you an education no business school in the world could match.

However, Icahn has also lagged behind the S&P 500 over the last decade with an annualized return of 11.87%.

Seth Klarman of Baupost is, similarly, one of the best investors of all time. However, his equities portfolio has returned just 6.59% over the past decade. Most of his fund’s assets are in fixed income and real estate opportunities not reported in 13F filings.

The superstars of yesterday are now aging billionaires whose goals differ from those of us who are still looking to pile up wealth as rapidly as possible. Plus, their funds have billions of dollars, making it far more challenging to take advantage of the most attractive opportunities.

I will spend a couple of issues identifying who the best investors are today, and share a few ideas they have been buying recently that might offer outstanding potential returns.

For starters: have you heard of Electron Capital?

Most investors have not, but the New York firm, which invests in companies focused on the transition of energy consumption towards lower carbon intensity solutions, has one of the best track records in the game.

Electron is investing in companies committed to producing clean energy and developing infrastructure for the energy transition process, as well as the utilities that will provide cleaner energy to homes and industries in the future.

It is no secret that I am still a huge fan of fossil fuels, but I have also made it clear that I believe in the eventual transition to green energy. Of course, we will still burn oil and gas, but renewable energy will be the fastest-growing segment of the energy industry.

How good is Electron Capital?

Look at a few stocks it sold recently to see how good it is.

In the third quarter, Electron sold out of Enphase Energy (ENHP), the popular solar inverter company, at a price of about $276. Its first purchase of the stock was back in 2017, long before every talking head and pundit recommended it. At the time, Electron paid a split-adjusted price of $1.37.

Electron also sold a bunch of Quanta Services (PWR) in the quarter for an estimated price of $127. The firm’s first purchase of the stock was in 2018, at around $33.

The firm has returned in excess of 33% over the past three years for its investors. In addition, over the past 17 years, the firm has outperformed the S&P 500 by a 2.5-to-1 margin and the World Utilities Index by more than 13 times.

One of Electron Capital’s newest positions is Eos Energy Enterprises (EOSE), a company that designs, manufactures, and deploys battery storage solutions for utility, commercial, industrial, and renewable energy markets.

Eos Energy has developed Znyth, an aqueous zinc battery designed to overcome the limitations of conventional lithium-ion technology. This company has a long-shot element, but if the battery works at a utility level, this stock could be a ten-bagger as the energy transition progresses.

Electron Capital was also adding to its already large position in Stem (STEM), a global leader in AI-driven clean energy software and services. Stem’s AI- software platform, Athena, enables organizations to use AI to deploy and unlock value from large-scale clean energy assets. The company also provides solutions to help improve returns across energy projects, including storage, solar, and electric vehicle fleet charging.

Over the next several decades, there is an enormous amount of money to be made in both fossil fuels and renewable energy.

I have fossil fuels more than covered in both Underground Income and The 2023 Turnaround Project, but investors looking to uncover energy transition opportunities might do well to track the buying and selling of Electron Capital.

I will be doing the same here at the Hidden Profits Report.
Over a 22-year model I’ve compiled, investing in this high-yield dividend stock produced 972% total gains. Those gains are good to DOUBLE the average returns of the market over the same two decades. This is a brand new strategy I’m bringing to Investors Alley. If you like income, you’ll like this. Click here for details on how to get started today.

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