Whether the price of gold continues to rise or not, the outlook for gold producer Centamin (LSE: CEY) appears to be very bright.
Certainly, a continuation of the recent gains for the precious metal would be good news for Centamin and with uncertainty surrounding the global economy being high, that scenario seems to be rather likely. After all, gold is seen by many investors as a store of wealth and with China showing little sign of picking up in terms of GDP growth and the Eurozone continuing to offer only anaemic levels of growth, gold could remain in vogue over the coming months.
However, the most important aspect of Centamin’s future is its planned increase in production. It’s seeking to produce around 500,000 ounces of gold in 2017 and by doing so it should be able to rapidly increase its bottom line. For example, Centamin’s earnings are expected to rise by 27% in 2016 and this puts it on a price-to-earnings growth (PEG) ratio of just 0.6. This indicates that there’s still scope for capital gains even though Centamin’s shares have already risen by 43% since the turn of the year.
Although in the long run the price of gold may come under pressure as US interest rates rise (gold has historically moved inversely to US interest rates), the reality is that the pace of monetary policy tightening in the US is likely to be slow. Therefore, with Centamin’s ramp-up in production yet to come and gold prices set to remain stable, the gold miner could be a strong long-term buy at the present time.
You can be sure of Shell?
While the price of gold has soared since the turn of the year, the price of oil has continued to offer little hope to investors. And while there’s the potential for a further slump in the price of black gold, Shell (LSE: RDSB) seems to be an excellent purchase at the current time.
A key reason for that is Shell’s superb financial strength and sound strategy. For example, it has a strong balance sheet and highly resilient cash flow that should enable it to outlast sector peers during the current challenging trading conditions. And with the company seeking to take advantage of a low oil price through the purchase of discounted assets, it seems to be strengthening its position relative to peers, which should lead to improved profitability and market share in the long run.
With Shell’s share price having fallen by 24% in the last year, it now trades on a P/E ratio of just 14.2. Given that its earnings are expected to move higher in 2017, this seems to be a rather enticing price to pay for such a well-diversified and financially sound business. And while there’s the potential for further sustained falls in the price of oil, Shell looks set to ride out the problems it faces and deliver improving returns for its investors over the long run.
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Peter Stephens owns shares of Centamin and Royal Dutch Shell. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.