A ramping-up of geopolitical and macroeconomic fears over the summer has resulted in some significant weakness for the FTSE 100. It’s now trading 6% below its closing peaks for the year of around 7,687 points.
Sure, the UK’s premier share index may still be up by mid-single-digit percentages for 2019 — up 7% by my calculations — but it’s quite possible that it could keep leaking lower for the remainder of the year and beyond.
Fears over the direction that impeachment proceedings against President Trump will take, allied with uncertainty over the future of Prime Minister Johnson in the UK and how this will affect the Brexit process, are weighing on trader sentiment right now. But risk appetite could also keep declining on the rising prospect of a US-Iran war, a worsening of trade tensions between American and Chinese lawmakers, and the rising prospect of key European economies like Germany sinking into recession.
Take the High road
I’m much more optimistic over the share price prospects of Highland Gold Mining (LSE: HGM), for one. With market confidence steadily worsening it’s a great idea to grab a slice of shares with safe-haven qualities, and as a major gold producer this AIM-quoted firm clearly fits the bill.
Highland has already stormed higher in 2019 as share investors have sought to hedge their portfolios against the threat of rising turbulence in the global economy by buying traditional flight-to-safety assets. In the year to date, it’s up a whopping 62%, underpinned by a 20% increase in gold prices in that time.
And judging by recent data on precious metals demand it looks like both gold values and Highland’s share price should keep rising. According to UBS’s latest data on gold-backed ETFs, global holdings continue to rise, driven by soaring buying activity in the US where total holdings now sit at levels not seen since April 2013.
Profit forecasts poised to rise?
It’s little surprise that with Highland also taking steps to supercharge production (group output leapt 23.3% in the first half of 2019), and gold values predicted to keep booming, City analysts expect Highland’s bottom line to swell over the medium term as well.
A 65% profits increase is forecast for this year and another 12% advance for 2020. And I would say that next year’s estimate could be subject to some significant upgrades in the months ahead, given the improving price outlook for gold. Amid a flurry of updated yellow metal estimates in recent weeks, projections from Citi were the ones that really grabbed the headlines. According to the broker, gold will keep rising and eventually hit $2,000 per ounce within the next two years, up from around $1,530 at present and smashing the all-time highs of $1,910 hit around the start of the decade.
At current prices, Highland trades on a forward P/E ratio of just 11.2 times, and offers up a tasty 3.5% corresponding dividend yield. For a share with such a terrific profits outlook, I reckon these figures make it a steal and a brilliant pick for long-term investors seeking to bulk up their ISAs.
