Tim Seymour: Gold has a lot more upside to go

Key Concepts:

• Gold as a store of value and hedge against economic uncertainty.
• Gold miners (GDX) and their operational leverage.
• Impact of interest rates on gold prices.
• Cisco's transition to security and software.
• Valuation and growth prospects of Cisco.

Gold's Performance and Role

• Gold has achieved its 26th record close of the year and its best week since June.
• Despite White House clarification on potential tariffs on gold bars, Tim Seymour believes the underlying dynamics driving gold's record highs remain strong.
• Seymour argues that gold's appeal isn't solely tied to the decline of US exceptionalism or the dollar's status as a reserve currency, as the dollar is expected to remain a reserve currency.
• Gold's 20-year chart is considered one of the best, indicating its long-term viability as an investment.

Gold Miners (GDX) Outperformance

• Gold miners are now outperforming the underlying metal, with the GDX showing a significant move.
• The GDX has outperformed gold by approximately 15% in the last three months and 55% year-to-date.
• Gold miners benefit from operational leverage, generating substantial free cash flow.
• Analysts are expected to upgrade their base price and gold models, leading to major upgrades for gold mining companies.

Impact of Interest Rates

• A potential decrease in interest rates would lower carry costs, providing another tailwind for gold.

Cisco's Earnings and Valuation

• Cisco is reporting earnings next week and has reached a 52-week high, being the second-best stock in the Dow behind Apple.
• Cisco's story revolves around a more predictable earnings stream due to its transition into security and software.
• Positive news in networking dynamics is anticipated.
• The Street expects favorable numbers from Cisco's earnings report.
• Cisco is considered the cheapest mega-cap tech stock, lacking the growth of others but offering a mid-to-high single-digit EPS profile at 17 times earnings.
• A small rerating could lead to further stock appreciation.

Conclusion:

Tim Seymour maintains a bullish outlook on both gold and Cisco. Gold's continued strength is attributed to its role as a safe-haven asset and the outperformance of gold miners due to their operational leverage and free cash flow generation. Cisco is viewed as an undervalued mega-cap tech stock with a predictable earnings stream and potential for further growth, making it an attractive investment opportunity.