It’s been a strong start to the week for the Gold Miners Index (GDX), and while some names are merely gaining back lost ground from the market turbulence in March, others have vaulted to new multi-year highs and are pushing through massive resistance levels. These miners look to be the new leaders in the sector and are the ones investors should continue to keep at the top of their watchlists during dips as this is where the funds will likely go shopping. In addition to powerful technical charts, however, these miners are also enjoying some of the strongest earnings growth rates in the market currently, especially considering the massive earnings contraction we’ve witnessed across most sectors given the COVID-19 fears. Based on the continued strength in miners and the significant change of character we’ve seen in the market, I believe investors would be wise to keep an eye on three miners in particular. Let’s take a closer look below:

While there are about seventy gold miners worldwide currently producing gold at a 50,000-ounce plus run rate per year, there are only about 12 truly worth owning, and five that are head and shoulders above the rest. The three names that stand out currently, however, based on both their fundamental and technical pictures are Barrick Gold (GOLD), Kinross Gold (KGC), and Franco Nevada (FNV). Not only do all of these three names have projected annual EPS growth of 20% or more for FY-2020, but all three have recently broken out of large bases and look like they want to head much higher before 2020 is out. Let’s take a closer look at Barrick below, one of the largest gold producers in the world, and a beaten-up name that’s finally coming back in favor:

(Source: YCharts.com, Author’s Chart)

As we can see in the above chart, Barrick Gold has seen its annual EPS mover relatively sideways since the peak in 2011, in a range between $0.30 and $0.75 the past six years. In FY-2020, however, we can see that annual EPS should head back to the top of this range before potentially breaking out in FY-2021. If we look at the annual EPS table below the chart, we can see that FY-2020 estimates are sitting at $0.72 for Barrick, with FY-2021 estimates at $0.80. The good news for investors is that these estimates are likely on the conservative side. Therefore, the earnings breakout year for Barrick through the $0.75 level could now be pushed up to FY-2020. This is because these estimates were based on $1,550/oz gold, and it’s looking like the company could enjoy an average selling price north of $1,600/oz for FY-2020. Therefore, the earnings breakout year we were supposed to get next year should come in FY-2020, a massive bullish development for the company.

(Source: TC2000.com)

If we look at the quarterly chart of the stock above, we see a very similar picture, with the stock breaking out to new multi-year highs ahead of its earnings breakout. This is a very bullish development as it’s confirming the fundamental shift to an uptrend in annual EPS, and we often see prices get the memo of a significant change before the fundamentals confirm them. It is worth noting, however, that Barrick is now up 45% for Q2 and is not worth chasing here. However, I would view any pullbacks to the top of this box near $20.00 as buying opportunities.

Moving over to the next name on the list, Kinross Gold, we also have an unloved name that’s seeing a surge in earnings growth from a period of dismal growth following some unfortunate write-downs, such as the Tasiast Mine write-down in 2013. Since FY-2019, however, we have seen a new uptrend in annual EPS, with yearly EPS hitting a new multi-year high at $0.34 in FY-2019. This represented a year of 240% earnings growth, one of the strongest earnings growth rates in the market, and one of the best among the sector. If we look ahead to FY-2020 and FY-2021 to confirm this wasn’t a one-off, it’s clear that this robust growth is likely to continue. KGC’s FY-2020 EPS is sitting at $0.49, forecasting 40% growth year-over-year, and FY-2021 estimates are sitting at $0.52, forecasting a year of low single-digit growth. While these figures may pale in comparison to the FY-2019 growth of 240%, it’s important to note that this growth is lapping a year of tough comps, and is very impressive for this reason.

(Source: YCharts.com, Author’s Chart)

Similar to GOLD, KGC is also breaking out of a multi-year base; a massive change in character for the stock. While the stock could also use a bit of a rest over the next few weeks to digest these gains, there are few things more bullish than a 4-year breakout to new highs. Based on the follow-through that this breakout is showing, I would view any 20% pullbacks in Kinross to the $5.70 level as buying opportunities.

(Source: TC2000.com)

The last name that’s a must-own in the sector is Franco Nevada Gold, and the earnings trend below speaks for itself. Given that Franco Nevada is a royalty company, it has maintained a strong uptrend in annual EPS during the gold bear market and has seen steady double-digit yearly EPS growth each year. In FY-2019, the company’s Cobre Panama stream came online and has delivered massive revenue growth for the company. This contributed to the 58% growth in annual EPS in FY-2019, and FY-2020 is expected to see further annual EPS growth, with projections for 23% growth this year, from $1.83 to $2.25. Unlike the other gold names in the sector, Franco Nevada has very low overhead with less than 30 employees and enjoys gross margins of over 80%, a figure that most tech companies would salivate over. While the stock is beginning to get expensive at 70x earnings at $125.00, pullbacks are likely to be buying opportunities as these would allow the valuation to cool off a little.

(Source: YCharts.com, Author’s Chart)

Moving to FNV’s quarterly chart, we can see confirmation of the strong fundamental picture. Some may not know this, but Franco Nevada has not only outperformed gold, and the Gold Miners Index, and many of the highest-growth technology stocks. While it rarely pays to chase a stock up 30% in a month like Franco Nevada Gold is currently, I believe any pullbacks below $114.00 would provide opportunities to begin nibbling on the stock.

(Source: TC2000.com)

The metals space can be a very tricky sector to navigate if one is not experienced, but I’ve found the best returns come from hunting down the best companies and buying them when they’re trading at reasonable prices. Kinross Gold, Franco Nevada Gold, and Barrick Gold are arguably three out of the five most impressive companies in the sector, and they are names that should be strongly considered on sharp pullbacks. While I have taken profits on Franco Nevada Gold recently and closed my position, I will be looking at dips to add positions in all of these leaders over the next month or two.

(Disclosure: I am long GLD)

Disclaimer: 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 on this writing.

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GOLD shares were trading at $27.17 per share on Thursday afternoon, up $0.69 (+2.61%). Year-to-date, GOLD has gained 46.64%, versus a -12.26% rise in the benchmark S&P 500 index during the same period.

About the Author: Taylor Dart

Taylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...

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