TFSA Investors: Buy This Stock to Protect Your Portfolio During a Bear Market

Bear markets can be devastating to investors’ portfolios, especially if you aren’t ready for it. Buying a high-quality gold stock like Equinox Gold Corp (TSX:EQX) can help protect you from that risk.

| More on:
A brown bear sitting on a rock

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The majority of investors and economists believe that an economic slowdown lies right around the corner. Despite global markets reaching all-time highs, numerous economic signals point to trouble ahead and a peaking economy.

In both Canada and the United States, interest rates were kept at historically low rates for far longer than what would have ever been considered normal, in order to spark higher economic growth rates. This was especially worse in the United States.

Now, with economic factors such as full employment, slower growth and both the Federal Reserve and Bank of Canada considering cutting rates rather than raising them, it’s clear both economies have peaked.

One asset class that you can gain some exposure to as a hedge against a peaking economy is the precious metal of gold.

Taking a small portion of your portfolio and buying up a gold miner to give you exposure and leverage to the underlying price of the precious metal is a prudent move, especially when it’s clear the economy is starting to slow.

As the stocks are leveraged to the price of the metal, which makes the stocks highly volatile, you only need to allocate a small portion of your portfolio to gain the exposure you need.

It’s the go-to safe haven currency that will protect your portfolio against inflation and will increase in price as panic spreads across financial markets.

If you’re searching for a gold stock to add, the best stock to consider at the moment is Equinox Gold Corp (TSX:EQX).

In the third quarter of 2019, many producers saw the first full quarter with a significantly higher realized selling price for their gold after the metal’s large jump in the summer months.

While many producers took advantage of the increased prices, none capitalized more than Equinox.

It’s still a relatively new company that just began production in 2018, but already it’s posting solid returns.

In the third quarter, the company sold more than 62,000 ounces at an average realized price of an impressive $1,473, resulting in revenue of nearly $92 million. On that revenue, the company was able to generate an operating margin of roughly 29% and a profit margin of nearly 9%.

Equinox reported earnings per share of $0.07 in the third quarter; if you annualize that and take the price to earnings ratio, as of Monday’s close, the stock was trading just below 28 times, one of the cheaper valuations in the industry.

Calculating a number of its peers the same way, it’s clear that Equinox is undervalued. Plus, it’s still in the growth stage, so you can expect to see a significant increase in the gold it’s producing over the coming years.

This year it will do approximately 200,000 ounces in production but have a run-rate at the end of the year of more than 250,000 ounces of annual production.

When Equinox’s third mine, the Castle Mountain mine in California comes online in 2020, it should add another roughly 50,000 ounces of production initially to the company’s annual run rate, bringing it closer to 300,000 ounces for the first couple years.

Equinox, however, has big plans to grow this production, and estimates it can get to one million ounces of annual production by 2023.

In the long run, gold will always appreciate, especially as we print more and more money. Thus, as long as you find gold miners that are well run and can grow over the long term, you can’t go wrong owning gold.

Buying individual gold miners can be extremely risky, however, so it’s recommended that you diversify to other producers as well to mitigate some risk.

The last thing you want is to buy the stock for defense and have it be one of your worst performers because of some unforeseen risk.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa owns shares of Equinox Gold.

More on Metals and Mining Stocks

Gold bullion on a chart
Metals and Mining Stocks

Is Barrick Gold Stock a Hedge Against Inflation?

Barrick Gold is among the largest gold mining companies globally. Is the stock a good bet amid rising inflation rates…

Read more »

Gold bullion on a chart
Metals and Mining Stocks

Should You Buy Barrick Gold (TSX:ABX) Stock on the Pullback?

Barrick Gold stock looks cheap right now, but is it a good buy at this level?

Read more »

gold stocks gold mining
Metals and Mining Stocks

3 Gold Stocks That Have Held Strong During a Chaotic 2022

Three TSX gold stocks remain strong performers in 2022, notwithstanding the growing fears of a recession and rising inflation.

Read more »

TSX Today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Friday, June 24

Despite minor optimism in key global stock indexes, the TSX Composite could open on a flat note today, as commodity…

Read more »

calculate and analyze stock
Metals and Mining Stocks

1 Growth Stock to Buy and Hold During Any Market Correction

This growth stock is still up year to date by 14%, whereas many continue to fall around it. Yet it…

Read more »

gold stocks gold mining
Metals and Mining Stocks

Are Gold Stocks Now a Buy?

Gold stocks look cheap today. Is this the right time to buy?

Read more »

Gold bars
Metals and Mining Stocks

Inflation Is Hot This Year: Why Isn’t Gold Rising?

Gold isn't rising much this year. Neither are gold stocks like Barrick Gold (TSX:GOLD)(NYSE:ABX).

Read more »

energy oil gas
Metals and Mining Stocks

3 TSX Commodity Stocks to Buy in July

Canadian investors can look to buy commodity stocks such as Barrick Gold and Nutrien to derive outsized gains in the…

Read more »