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What are we looking for?

North American gold-mining companies with the potential to provide strong returns for the remainder of 2018. We search for companies with the ability to handle short-term financial obligations and effectively manage costs.

The screen

Few global and political events have been as tumultuous as those witnessed in the United States over the past few weeks. President Donald Trump made good on his campaign promise to take a hard line on Chinese steel dumping by introducing more tariffs, the U.S. Federal Reserve moved to further raise interest rates, and John Bolton, generally regarded as a “war hawk,” was hired to replace H.R. McMaster as Mr. Trump’s national security adviser.

Investors are increasingly worried that recent developments may spark a global trade war and have negative implications for future economic growth. Historically, in such uncertainty, investors turn toward a haven for their assets; many “de-risk” their portfolio by buying gold, either directly or indirectly. Instead of buying the physical asset, investors can increase their exposure to gold by buying equity in precious metal miners.

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Today we screen for mid- and large-cap North American precious-metals mining securities. We are looking for companies with a market capitalization greater than US$2-billion, a positive quick ratio (a measure of the company’s ability to meet short-term financial obligations) and an operating profit margin greater than 15 per cent (a measure of the company’s ability to effectively manage costs).

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What did we find?

Seven Canadian companies met all of the criteria required by our screen. The resulting table is ranked by quick ratio. None of the companies pay a dividend.

Select gold stocks

CompanyTickerMarket Cap (US$Mil)Gold Reserves, (Mil Troy Ounces)Debt/EquityQuick RatioOperating Profit MarginYTD Total ReturnRecent Close ($)
Franco-Nevada Corp.FNV-T12,890.1117.90.0%27.025.5%-10.7%69.33
Wheaton Precious Metals Corp.WPM-T9,011.811.624.1%8.525.0%-5.6%20.36
Agnico Eagle Mines Ltd.AEM-T9,741.419.927.8%2.916.8%-6.9%41.78
Pan American Silver Corp.PAAS-T2,476.12.00.7%2.023.8%6.6%16.15
Kirkland Lake Gold Ltd.KL-T3,321.83.73.3%2.022.4%5.3%15.75
Barrick Gold Corp.ABX-T14,587.986.069.2%1.628.3%-11.1%12.50
Teck Resources Ltd.TECK.B-T14,561.3n/a32.9%1.220.3%-0.1%25.44

Source: Thomson Reuters Eikon

Franco-Nevada Corp. stood out as the best company to be able to finance short-term obligations, with a quick ratio of 27. It also had the second-highest operating profit margin at 25.5 per cent, proving that the company does a good job at effectively managing costs. The company’s share price is down more than 10 per cent so far this year.

Barrick Gold Corp. stood out in terms of operating profit margin, with the highest score at 28.3 per cent. The company carries a quick ratio of 1.6, which is low but still above the industry average of 1.5. The company’s stock price has declined about 11 per cent so far this year.

Investors are encouraged to do their own research before investing in any stocks listed here.

Paul Hoyda, CFA, is an account manager for the financial and risk division of Thomson Reuters and covers Canadian corporations.

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