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.
