Inflation doesn’t necessarily have to lead to poor portfolio performance. Gold has often been utilized as a hedge against inflation because of its “alternative store of wealth” properties.
Many thought that cryptocurrencies were an attractive way to hedge inflation during the early inflationary cycle in 2021. However, the correlation between the rise in crypto prices and inflation was due to expansionary economic activities, and gold has recently replaced crypto as an inflation-linked product as we’ve entered a late-inflation cycle.
Gold mining companies tend to thrive whenever gold prices rise because they can sell their deposits at higher prices while passing costs through to the mid and downstream segments of the supply chain.
Here are three gold mining companies that I’m bullish on for the time being.
Barrick Gold (GOLD)
Barrick Gold is a Canadian gold mining company led by Mark Bristow. The firm has produced staggering financial results since the introduction of Bristow as its CEO. For instance, Barrick recently released its fourth-quarter financial results, which communicated an earnings expectation beat of 2 cents per share.
The company’s on an expansionary spree with exposure to the impressive Nevada Gold Mines entity, which is a joint venture with Newmont Corporation. Furthermore, Barrick’s Pueblo Viejo mine in the Dominican Republic is set to undergo additional investment, stretching its life cycle beyond 2040.
At a price-to-book ratio of 1.87x, Barrick stock is arguably undervalued. In addition, the firm’s on a $1 billion share buyback spree, which could give rise to its ordinary shares. Barrick Gold is a very attractive stock in the current market climate.
Turning to Wall Street, GOLD stock earns a Strong Buy consensus rating based on 10 Buys and three Holds assigned in the past three months. The average Barrick Gold price target of $26.43 implies 5.1% upside potential.
Newmont Mining (NEM)
Newmont is the world’s largest gold mining firm. NEM’s projects span across the Americas, Australia, and Africa to provide it with a diversified portfolio of growth assets. The company’s current key strategic interest is the Yanacocha mine in Peru, which is lucrative because of its high-grade deposits that tend to provide a hedge against demand fluctuations.
Newmont’s operating margins have improved significantly over the past three years. From a three-year CAGR vantage point, the company’s EBITDA has expanded 17.5%, its net income grew 50.65%, and its diluted EPS grew 38.25%.
Newmont exhibits a high-quality balance sheet with a current ratio of 2.9x, which means its solvency risk is low. Additionally, the stock’s a high reward but a relatively low-risk option, with a Beta of 0.30.
Also worth noting is the stock’s dividend properties. This mining stock sports an attractive dividend with a yield of 2.66% and a five-year growth rate of 71.11%.
Turning to Wall Street, surprisingly, NEM stock only earns a Hold consensus rating based on one Buy and nine Holds assigned in the past three months. The average Newmont Mining price forecast of $72.41 implies downside potential of 12.7%.
Agnico Eagle Mines (AEM)
This is probably the most undervalued stock on the list. Agnico Eagle recently completed a $10 billion merger with Kirkland Lake, which could see it achieve more than $10 billion in synergies over the next 10-years.
Furthermore, Agnico’s flagship mine “LaRonde” in Quebec, Canada, has proven resources of 3.0 million ounces of gold. This asset provides a solid cornerstone to the company, allowing it to expand into other growth regions with the certainty that its “cash cow” will cover the necessary costs.
The Canadian mining house also mines other metals. Its exposure to base metals such as zinc and copper provides it with exposure to other segments, which smoothes out its topline revenue whenever its gold assets underperform.
Agnico’s fourth-quarter revenue beat of $6.66 million indicated that the firm is in good health. Agnico’s price-to-sales ratio is at a 15.35% discount to its five-year average, and its price-to-earnings ratio is at a discount worth 58.9%, suggesting that it holds value in abundance.
Turning to Wall Street, Agnico Eagle stock earns a Strong Buy consensus rating based on 10 Buys and two Holds assigned in the past three months. The average Agnico Eagle Mines price target of $68.05 implies 5.3% upside potential.
The Bottom Line
There’s no guarantee that gold stocks will provide anyone with a bulletproof portfolio during periods of higher inflation, but they certainly present investors with a fighting chance. Inflation investing can be tricky, but there are essentially two things to look out for.
The first is to seek deep value stocks because value outperforms growth during inflationary periods. The second is to opt for precious metals stocks because of their vertically integrated properties and captive markets.
The stocks mentioned in this article exhibit all the necessary qualities to fight inflation and could outperform the market during these torrid times.
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