Investors may be struggling to find value buys among ASX gold mining stocks even as the price of the precious metal surged to a record high.
The spot gold price strengthened by 1.6% to US$1,973 an ounce this morning as gold stocks outperform the S&P/ASX 200 Index (Index:^AXJO).
There's good news for ASX investors who worry that they might have missed the opportunity to buy gold mining shares – UBS thinks it isn't too late.
Gold price upgrade
The broker upgraded its forecast for the safe haven commodity. It is now expecting gold to average US$1,850 an ounce this financial year, or US$200 ahead of its previous prediction.
UBS' expectations for FY22 is for the yellow metal to fetch US$1,750 an ounce compared to its last forecast of US$1,650 an ounce.
"The upgrade to our gold price forecasts drives a substantial ~30-60% uplift in our 2021e NPAT forecasts," said UBS.
"All our coverage is investing in growth initiatives, but the strong gold price means they have positive FCF [free cash flow] yields."
Upside might even be higher
But even then, the broker's estimates may still prove to be too conservative. I believe the gold price could be averaging around US$2,000 an ounce over the next year for a few reasons outlined here. The gold bull run may be closer to the beginning than the end.
If you are wondering which stocks are best leveraged to the big rise in the shiny metal, UBS has picked the best placed ASX miners to outperform.
Best ASX gold stocks to buy
The Newcrest Mining Limited (ASX: NCM) share price is its top "buy" idea for the sector.
"We recently changed our thesis on Newcrest based on our in-depth work on Red Chris and Havieron," explained the broker.
"The inclusion of these projects challenges market perceptions that production is peaking in 2020-21. We recently upgraded NCM to Buy, the first time since Aug 2012."
The next 3 top buy ideas
The next three best ideas are the Regis Resources Limited (ASX: RRL) share price, OceanaGold Corp (ASX: OGC) share price and Saracen Mineral Holdings Limited (ASX: SAR) share price, in that order.
"Regis and Oceana are trading at a significant discount to peers on earnings multiples, and offer an alternative to some of the larger names for gold exposure," said UBS.
"We believe Saracen offers a superior growth profile, with a 5-year production CAGR of ~5% ahead of peers (0-5%) and trading on a similar EBITDA multiple of 9x to large peers on 9-10x."
UBS upgraded Newcrest's price target by 6% to $40.60, Regis by 8% to $6.50, OceanaGold by 9% to $4.70 and Saracen by 10% to $6.90 a share.
