Market Analysis: GOLD 6/3/2014

3 Shares Analysts Love

Randgold Resources

Another miner most City experts are keen on — none at all rate it a sell — is gold-focused Randgold Resources.

Deutsche Bank was one of a number of analysts to reiterate a buy rating in the wake of robust first-quarter results released last month. Randgold said it had “got off to a strong start” as it seeks to break through the million-ounce production mark for the year.

Deutsche, which reckons Randgold has “firmly” established itself as an underground miner, rates the company a buy on valuation grounds with a target price of 5,000p compared with a current price of 4,357p. Analysts at Numis are even more bullish, looking for 5,900p.

Rio Tinto

FTSE 100 mining giant Rio Tinto is rated a buy by 7 out of every 10 analysts, with most suggesting a ‘strong’ buy.

A number of the bulls reckon investors have become blinkered into obsessing about the company’s dominant iron ore business, and that, as Deutsche Bank puts it: “The value of Rio’s aluminium business has been mentally written-off by the market”.

Deutsche forecasts the aluminium division will contribute 10% to Rio’s profits by 2016 (its largest contribution since 2007) helping to offset some of the weakness in iron ore prices. Meanwhile, Citigroup reckons the company’s ‘forgotten’ aluminium leverage will provide “significant upside … particularly as we expect a cyclical bottoming in iron ore”.

Citi values the division at $17bn — “considerably more than is imputed in the share price”, which currently stands at 3,057p.

Barratt Developments

Housebuilder Barratt, which issued a bullish trading update last month, is another company with no ‘sell’ note from City analysts.

Deutsche Bank reckons investor concerns over future mortgage lending — reflected in a current share price of 357p — are “overdone”. Merrill Lynch agrees and notes:

“[Barratt] has retreated 17% since its peak in March around the time of its inclusion in the FTSE 100 and now trades on a PER to June 2015 of 8.9x. This we believe is its lowest rating since its earning collapse in 2008. Furthermore, it trades on a P/NAV of 1.1x to December 2014, vs a sector average of 1.5x”.

Merrill’s numbers imply an upside of more than 33% from the current share price.

Finally, while Barratt has benefited from rising house prices, there are other companies -- in other industries -- with the potential to soar ahead of the property market in the years ahead.