Up 34% over the last 12 months, gold mega-miner Newmont (TSX: NGT)(NYSE: NEM) was one of only a handful of stocks that remained positive south of the border as the S&P 500 Index tanked. By the end of the week, its performance on the similarly battered TSX showed a 10% loss — a move that would have alarmed even the most steadfast of investors in any other week.
Seeing a classic defensive play like Newmont down 10% is certainly shocking. But last week was especially heinous for investors, with the coronavirus rushing across the globe to take on pandemic-level proportions. With epidemics now erupting in Italy, Iran, and South Korea, investors rushed to sell as the markets began to exhibit extreme fear.
With the news awash with recessionary think-pieces and virus alarmism, blurring everything from images of a sneezing Pope Francis to the potential “Bernie Sanders” effect on the stock markets, last week was certainly a tough time to stay bullish.
On the flip side, of course, it’s been a contrarian’s dream. There’s nothing quite like a mass sell-off to bring out the bargain hunters, and as we’ve already noted with Newmont, there are some cheap, high-quality TSX stocks out there at the moment.
If the selloff continues amid a growing coronavirus outbreak, becoming a months-long downturn, gold stocks are likely to see some upside. Some stimulation may come in the form of an interest rate cut if the economic situation worsens, with bank stocks in particular likely to improve on the news. TD Bank, for instance, fared slightly better than some Big Five peers, dipping 8.8%, while Scotiabank lost just 5.4%.
Longer term, though, no sector will be entirely immune to a recession. And if the coronavirus outbreak proves uncontainable, there’s every chance that a widespread downturn is indeed on the cards. This is where the “hold” part of “buy and hold” comes in, though. High-quality stocks are meant to be held for the long term, no matter what the market does. The assumption, and indeed the rule, is that stocks recover.
Newmont has some remarkable figures to dig into. The sell-off has left this high-quality stock trading at a 61% discount off its fair value, leaving plenty of room for upside potential. With a great 12-months behind it, the company raked in a massive 927% earnings increase, boosted by its merger early last year that brought key synergies and world-class mining assets.
Further indicators of excellent value can be found in Newmont’s market ratios, such as a P/E of 11.4 that undercuts both the market and the Canadian metals and mining industry averages (14.7 and 14.1, respectively). A dividend yield of 2.24% covered by a slender payout ratio of just 14% suggests dividend-growth potential ahead.
The bottom line
A solid choice for a buy-and-hold stock this month, Newmont is both classically defensive and richly rewarding in the long term. While the impact of the coronavirus is potentially far from bottoming out, the eventual relief rally should return the markets to pre-correction levels. In the meantime, as a play for passive income and eventual share price appreciation, Newmont is one golden stock.
