To counter inflation, which rose to 7% in December, the highest in the U.S. since June of 1982, the U.S. Federal Reserve plans to hike interest rates, with analysts estimating at least three hikes starting this year.
While this is a necessary move to prevent economic ruin via hyperinflation, the restrictive monetary policy will be a blow to many highly-indebted companies which have been allowed to become increasingly wasteful of their money, turning into "zombie" companies that remain in operation despite losing billions of dollars and needing to take on increasing levels of debt in order to survive.
With the U.S. government becoming increasingly reliant on debt as well, the surge in interest rates is raising serious concerns about the subsequent policies of the government that might be undertaken in order to continue its operations and keep borrowing money. This could result in measures such as tax hikes, cuts in public spending or even negative interest rates. The government budget deficit stood at 14.9% of GDP in 2020, and that's just in the U.S. alone.
As a result, investors are increasingly opting for safe haven investments like gold, which offers protection against sharp price fluctuations, rapidly rising inflation and other uncertainties. The price of gold futures expiring in February 2022 has reached $1,813.25 per troy ounce as of the writing of this article and is expected to go up strongly in the coming months.
Anyone looking to profit from the expected bull gold market through gold miners may want to consider Endeavour Mining PLC (EDVMF, Financial), which has a very interesting catalyst that could trigger a strong recovery in the share price.
Headquartered in London, U.K., Endeavor Mining is the largest gold producer in West Africa, where it currently has mining and exploration operations in Senegal, the Ivory Coast and Burkina Faso.
In Burkina Faso, where Endeavor Mining produces more than 55% of its annual gold production, the company is positioned to benefit from the precious metal's potential appreciation locally. Due to an outbreak of bird flu in late December, which has so far badly hit domestic livestock, the West African country's third-biggest source of foreign exchange reserves, gold and cotton are in much higher demand in Burkina Faso. If the precious metal trades higher in its production country than the market price elsewhere, it should be positive for the profits of Endeavor Mining.
The stock is not expensive, in my opinion, as the stock price of $21.88 in early trading Tuesday is below the 50-day moving average of $23.10 and below the 200-day moving average of $23.25.
The stock has a market capitalization of $5.35 billion and a 52-week range of $18.11 to $28.52.
Additionally, the price-book ratio is 1.35 versus the industry median of 2.33, while the enterprise value-to-Ebitda ratio is 4.54 versus the industry median of 8.72.
The company last paid a semi-annual dividend of 28 cents per common share on Sept. 28, 2021. The stock offers a forward dividend yield of 2.55% as of early trading on Tuesday.
For full-year 2021, Endeavor Mining is expected to achieve a gold production of approximately 1.45 million ounces at total all-in sustaining costs between $850 and $1,100 per ounce sold.
Wall Street recommends a median rating of buy for the stock with an average target price of $33.27 per share.
