It’s still unclear who won last night’s election, although former Vice-President Joe Biden is slightly favored based on current tallies and outstanding votes in swing states like Pennsylvania, Michigan, and Wisconsin.

If Biden can win two out of three, then he will emerge as the victor. There are still many votes left to count, and President Trump will likely challenge the validity of late-arriving ballots.

However, if Biden can sweep all three states, then the chances of a contended election dramatically plunge as President Trump would have to overturn the results of two states to win the election.

Congressional Elections

While the Presidential race’s outcome remains unclear, what’s certain is that Republicans outperformed relative to expectations and are expected to retain control of the Senate. They also added between 5 and 10 seats in the House of Representatives.

Both Georgia Senate races will likely go to a runoff, and Republicans will be favored to win both races which would give them 51 seats in the Senate and allow Senator Mitch McConnel to remain as Senate Majority Leader.

Impact on Financial Markets 

We are already seeing the ramifications of this in financial markets as tech stocks are zooming higher. A Senate controlled by Republicans simply means that there will be less spending and no tax hikes. It also means that some of the more ambitious parts of the Biden agenda, like his energy and infrastructure plan, may have less of a chance to come to fruition.

The surprise outcome of the elections is resulting in big gains for growth stocks, while cyclical sectors are down. This is evident with the PowerShares Nasdaq 100 ETF (QQQ) up 4%, while the iShares Russell 2000 (IWM) is flat. Divided government reduces the chances of a healthcare plan passing, which is why healthcare stocks are very strong. This outcome reduces the scope and size of a stimulus package, so banks and industrials are down on the day.

Another interesting area is precious metals. The immediate reaction is a slight selloff as less government spending means less inflation. However, I believe investors should consider buying this dip.

With gridlock handcuffing fiscal stimulus efforts, there will be an even bigger burden on the Federal Reserve and Chairman Jay Powell. After an aggressive burst of activity during the spring, when the Fed acted decisively to inject trillions of dollars of liquidity into financial markets, it’s been relatively quiet other than advocating for more fiscal stimulus.

Buy the Dip in Gold Miners

The lack of fiscal action means a decline in inflation expectations. This will give the Fed more urgency. Since interest rates are already near zero, the Fed will get creative in terms of how it will stimulate the economy. Some proposals are capping interest rates on long-term bonds, buying financial assets like stocks or ETFs, or even negative interest rates.

Ultimately, this will drive gold prices higher. Rather than buying gold, investors should consider investing in gold miners. Gold miners tend to outperform gold during precious metals bull markets.

Two more positive factors for gold miners are low rates, which means borrowing costs will be lower, and low energy prices. Energy is the primary cost for gold miners. Given the coronavirus, oil demand will likely remain depressed into next year which will lead to higher margins for miners.

This means that investors should consider buying B2Gold (BTG), Barrick Gold (GOLD), Kinross Gold (KGC), and Agnico Eagle Mines (AEM).

B2Gold (BTG)

BTG is a gold miner with a significant upside and an above-average dividend yield. The company does have some increased political risk due to operations concentrated in Asia and Africa.

However, it has a 2.4% dividend yield, and a P/E of 16. It also has the highest margins in the industry. In the last quarter, it’s all-in cost of production was $705 per ounce. This led to record profits and a doubling of its dividend yield. Analysts expect the yield to double over the next four years as well.

Therefore, BTG is an attractive combination of a value stock, dividend-payer, and dividend-growth stock in addition to an upside play on gold prices. It’s also expected to increase production at an above-average rate over the next five years.

BTG is rated a Buy by the POWR Ratings. It has an “A” for Peer Grade with a “B” for Trade Grade and Buy & Hold Grade. Among gold miners, it’s ranked #4 out of 30.

Barrick Gold (GOLD)

Many consider GOLD to be the premier gold miner in terms of quality. This sentiment was ratified by Berkshire Hathaway’s (BRK.A) investment in Barrick Gold.

Over the last decade, it’s struggled relative to its peers in terms of keeping costs down and new production. However, there are some constructive signs from new CEO Mark Bristow, formerly of Randgold.

This year, annual EPS is expected to increase by 104% and reach a new high. It has an attractive P/E ratio for 11, a 1.2% dividend yield, and an expected annual EPS growth of 35% over the next five years. With these underlying fundamentals, GOLD could make new highs with a resumption of the bull market in precious metals.

In terms of its POWR Ratings, Gold is rated a Buy. It has a “B” for Buy & hold Grade and Peer Grade. Among the gold mining sector, it’s ranked #2 out of 30.

Kinross Gold (KGC)

KGC is a multi million-ounce gold producer with operations across nearly all continents.KGC has implemented an impressive turnaround with new management that is committed to fiscal discipline. This is evident with its dividend issuance this year despite a challenging environment.

While the 1.5% yield is attractive, more compelling is its growth in EPS.

(Source: YCharts.com)

Last year, EPS increased by 240%, and it’s projected to increase by 76% this year. This means the company has a very attractive forward P/E of 8.6 which makes it substantially cheaper than its peers and the broader market. KGC will also benefit from increased production as well as strength in gold prices given economic and monetary conditions.

Agnico Eagle Mines (AEM)

AEM focuses on acquiring, developing, and mining mineral properties in the United States, Europe, Canada, and Latin America. Currently, the company is expanding its operations in Finland and recently received government permission.

Despite facing considerable challenges from the coronavirus, AEM has increased revenues by 5.8% in the second quarter. This is despite operations disrupted at many locations and increased safety measures which affected production. AEM’s earnings surprise history is impressive as well with the stock beating street EPS estimates in three of the trailing four quarters.

AEM is interesting because the stock has shown considerable relative strength. Over the last couple of months, it’s consolidated in a tight range between $75 and $85, while its peers have been trending lower. This is an indication of accumulation which increases the chances of a breakout when the bull market in gold resumes.

AEM’s POWR Ratings reflect this bullish picture as it’s rated a Buy. It has a “B” for Trade Grade, Buy & Hold Grade, and Peer Grade. It’s also ranked #3 out of 30 stocks in the Gold – Miners industry.

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GOLD shares were trading at $27.50 per share on Wednesday afternoon, down $0.28 (-1.01%). Year-to-date, GOLD has gained 49.27%, versus a 9.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...

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