Gold miner rally to continue, RBC says

|By:, SA News Editor

Yesterday's hawkish Fed guidance has the potential to dampen gold mining stocks (GDX) but RBC Capital expects continued outperformance; sentiment has changed, and investors have become more constructive on precious metals and precious metal equities.

The firm likes the sector's improving fundamentals, historically low earnings multiples, significant operational and financial leverage, as well as rerating potential given the industry’s focus to cut costs, boost margins and deliver free cash flow.

RBC prefers “higher quality names,” including Barrick Gold (ABX +0.7%), Goldcorp (GG +0.3%) and Yamana Gold (AUY -0.2%); while companies with higher relative cash costs and/or debt levels may initially outperform their lower cost, more financially sound peers, quality stocks provide the potential for greater long-term risk-adjusted returns and reduced potential for ongoing margin erosion.