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Which Canadian Gold Stocks Are Best for Young Investors?

New investors turning to the TSX Index for some exposure to the yellow stuff have some solid options at the moment. With gold prices moving higher on U.S.-China trade war nervousness, it’s a good time to follow the crowd and get invested in some precious metals stocks. But which stocks are best for young investors hungry for upside in a competitive and sometimes risky sector?

One stock that’s looking particularly desirable is Wesdome Gold Mines (TSX:WDO). Its past-year returns of 131.7% outperformed the Canadian metals and mining average (which itself was negative by 14.6%), and pulling in a considerable earnings growth of 482.2% for the same period. It’s got a solid track record with an average growth in earnings of 28.3% for the last five years.

Is this the TSX index’s best gold stock?

At a glance, a PEG of 0.6 times growth and low debt at 6.5% suggest a cheap stock with a faultless balance sheet; however, there’s always more data available to flesh out a picture, so let’s take a look.

In terms of value, that PEG is a little misleading: Wesdome Gold Mines is actually overvalued at the moment, with a price-to-earnings ratio of 31 and a P/B of 3.7 times book. While this could indeed be worse, the value-minded investor looking to make money with cheap stocks would be barking up the wrong tree here.

Despite a respectable 49% expected annual growth in earnings on the way, the momentum investor may also want to look elsewhere: Wesdome Gold Mines’ beta of 0.26 relative to the TSX Index overall indicates low volatility, while its share price is discounted by more than 50% compared to its future cash flow value.

Stick with a champion stock instead

A decent start to the year has had some pundits asking whether Barrick Gold (TSX:ABX)(NYSE:GOLD) can keep the pressure on for the rest of 2019. Its recent performance would certainly be a tough act to follow, that’s for sure.

For an outperforming gold stock, Barrick Gold is also surprisingly healthy: it has brought its level of debt right down over the last half a decade, from 80.9% to a satisfactory 31.7%; furthermore, that debt is covered by plenty of cash. Its track record is also solid, with a five-year average earnings growth rate of 48.4% backed up with some inside buying that signals inner circle confidence.

Value-minded investors have some conflicting signals to contend with. While Barrick Gold is intrinsically overvalued by about 25% of its future cash flow value, a price-to-book ratio of 1.4 times book comes in below the TSX Index. Still, it’s a decent investment at almost any price, and at $16.37 a share and falling, it feels like a steal at the moment.

The bottom line

Young investors seeking to make money with gold stocks should balance value with upside and look to the better-performing tickers. Barrick Gold has more momentum than Wesdome Gold Mines, and with its dividend yield of 1.28% paired with a forecast 25.4% annual earnings growth, it represents one of the best routes for investing in Canadian precious metals.

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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

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