Gold is often used as a defensive asset by investors who seek to protect their wealth from market volatility, inflation or currency devaluation. In 2023, gold stocks have become especially attractive as the global economy faces a slowdown due to the United States Federal Reserve’s interest rate hikes. These began in 2022 and have caused a surge in the U.S. dollar and a decline in emerging market currencies.
Gold prices have only risen by about 4% year-to-date. Movements in gold prices have been in part dented by the momentous equities rally this year. Ultimately, a modest appreciation in gold gives an opportunity for investors who are interested in investing in undervalued gold stocks and diversifying their portfolios to benefit from the long-term prospects of the precious metal.
Here are three of the most undervalued gold stocks that you should consider buying in August.
Torex Gold Resources Inc (TORXF)
Torex Gold Resources (OTCPK:TORXF) is a Canadian-based gold producer that operates the El Limon-Guajes mine complex in Mexico, one of the largest and lowest-cost gold mines in the world. The company also owns the Media Luna project. This project is expected to start production in 2025 and add $949 million to Torex’s bottom line based on gold spot prices.
Despite sluggish growth in recent years due to slower movements in gold prices, Torex has delivered impressive net income, increasing net income margins to 21.7% in 2022 from 17.7% in 2021. Similarly, earnings per share have also risen by a commensurate 27.8% in 2022 year-over-year to $2.19. Free cash flow (FCF) generation from already established gold mine projects has also been strong with more than $130 million of FCF in 2022. According to their Q2’2023 earnings print, Torex will have $527 million of ample liquidity (cash and debt) to be able to weather the headwinds currently facing the gold market.
Torex’s valuation is another major highlight. Shares are trading at 6.7 times forward earnings, while the company’s enterprise value trades at around 1.5 times forward EBITDA. Factoring into Torex’s undervaluation is perhaps its exposure to Mexico. This is perceived by some investors as a risky jurisdiction due to potential political and social instability. However, Torex has demonstrated its ability to operate safely and efficiently in the country and has established positive relationships with local communities and authorities.
Dundee Precious Metals Inc. (DPMLF)
Dundee Precious Metals (OTCPK:DPMLF) is another Canadian-based gold producer that operates two mines in Bulgaria and one in Namibia. The company also owns a smelter in Namibia and several exploration projects in eastern Europe and Africa. Similar to Torex, Dundee has experienced slowing revenue growth in the past couple years due to where gold prices have stabilized. Most interestingly, however, the gold miner has generated robust free cash flow and has amassed $542 million of cash and cash equivalents as the second quarter of this year. A war chest of this size should give confidence to equity investors weary of where growth is heading.
Despite with gold markets in their current state, some investors, at least, have taken notice of the opportunity Dundee’s shares have to offer. Shares have outperformed many gold miner peers, having appreciated more than 31% year-to-date. Additionally, overall valuation remains attractive in spite of the rally. Dundee shares only trade at a 6.8 times forward earnings. Similarly, the company’s valuation is also trading at 2.2 times forward EBITDA.
AngloGold Ashanti Limited (AU)
AngloGold Ashanti (NYSE:AU) is one of the largest gold producers in the world, with extensive mining operations in nine countries across Africa, Australia and South America. The company also has extensive exploration activities in various regions.
Last year was solid in terms of financial performance for the gold miner. Revenues increased by 11% year-over-year, but net margins compressed to 6.6% compared with 15.4% in 2021. Stabilized gold price coupled with inflationary cost pressures and continued mining operations had put pressure on operating expenses. Additionally, the gold miner reported a 54% decline in first-half 2023 profits as gold production remained flat. Investors were unforgiving in this situation and sparked a sell-off in shares. AU shares are currently trading down year-to-date at nearly -9%.
As a result, valuation has become rather attractive. AngloGold’s shares trade at a 10.3 times forward earnings. The company is also still generating a significant amount of EBITDA as its enterprise value is about 4.9 times forward EBITDA. Despite recent a devaluation, AngloGold still maintains a diversified portfolio of assets that should keep investors hopeful. This is easily one of the top gold stocks for you to consider.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.