TSX Stocks: Why This Investment Strategy Could Make a Comeback

Stocks like Barrick Gold Corp. (TSX:ABX)(NYSE:GOLD) offer access to undervalued commodities. But does it satisfy one out-of-fashion investment strategy?

Double exposure of a businessman and stairs - Business Success Concept

Image source: Getty Images

Value investing is one style that could come back into fashion with a bang this year. Value stocks have been in the bargain basement of the investment world for some time now. The bull market didn’t support them, and the market crash just pushed them further down. The ratio of value to growth stock popularity is now as low as it was two decades ago. That said, thing could be about to change.

Gold stocks in particular could come roaring back. While they’ve remained resilient during the market crash, many miners of the precious metal are still undervalued. Earnings season is going to be of particular interest to long-term investors.

It’s likely to be a rough quarter across the board, further depressing share prices, which in turn could help draw interest in beaten-up quality names.

Hold cash and get ready to buy cheap stocks

The catalyst could come in the form of a staggered economic crash. The pandemic has severely weakened the ability to deal with another major stressor, for instance, such as a natural disaster. The emergence of another virus, or the lack of a vaccine could have a similar effect.

In short, the toolbox of economic stimulants is empty. A cheap money bubble, meanwhile, has been silently inflating.

Value stocks could see gains as markets tumble. A reordering of global finances could see emerging markets grow in popularity. Investors should be looking at names that allow access to the BRICS nations, for instance.

Beyond this, investors should be keeping an eye out for names that trade below book value. This indicator of inherent value should be considered alongside the P/E ratio.

Returning to commodities, investors should consider gold mining names like Centerra Gold. Copper is also undervalued and could have masses of upside. Key names here include Lundin Mining and Barrick Gold.

Barrick, a strong play for gold, is also a play for the green power growth potential of copper. The bottom line, though, is price. Investors should single out beaten-up quality for long positions.

The oil price crash was a strong example of how much has changed since the start of the year. The price war couldn’t handle a pandemic; demand was utterly destroyed as a result, leading to negative prices. This is just one example of how entire sectors could suffer.

A bigger correction could be on the horizon, therefore, as the price of recovery takes its toll. If it comes, value investing will likely gain in popularity.

The bottom line

Is the market recovering, or is there worse yet to come? Investors may be overlooking the dangers of a free money bubble. Cheap cash has become an increasingly pressing issue with the successive interest rate cuts.

South of the border, the Fed likely recognized this danger when it kept rates steady this week. The strategy of zero interest and quantitative easing is likely to remain for 2020. Whether the Bank of Canada follows suit remains to be seen.

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

More on Coronavirus

grow dividends
Coronavirus

Canfor Stock Pops 5% as Sales Climb 15% YOY

Canfor (TSX:CFP) stock remained positive about its future in the global lumber market after profits climb 15% year over year.

Read more »

edit Safety First illustration
Coronavirus

2 Crash-Proof TSX Stocks I’d Buy With $5,000

These two TSX stocks have proven they can handle this economic downturn and likely will continue to be safe far…

Read more »

TSX Today
Coronavirus

What to Watch on the TSX on Tuesday, April 26

Earnings continue to come out on the TSX today, including Air Canada (TSX:AC). Meanwhile, investors may want to continue watching…

Read more »

think thought consider
Coronavirus

Should Investors Buy Goodfood Stock Ahead of Earnings?

Goodfood (TSX:FOOD) stock dropped on Wednesday ahead of the company's earnings release. And it's unclear whether there will be anything…

Read more »

little girl in pilot costume playing and dreaming of flying over the sky
Coronavirus

Cargojet Stock Soars Higher, Is it Still a Buy?

Cargojet stock (TSX:CJT) jumped after its deal with DHL, but at today's prices is the airline company still a buy…

Read more »

Arrowings ascending on a chalkboard
Coronavirus

Goodfood Stock Jumps 11%: Is it a Buy Before Earnings?

Goodfood (TSX:FOOD) stock jumped on news that it launched its one-hour delivery service in Ottawa on the eve of Q2…

Read more »

Plane on runway, aircraft
Coronavirus

Cargojet Stock Jumps 10% on New Strategic Deal

Cargojet (TSX:CJT) stock jumped 10% on Tuesday, as the company announced a long-term strategic partnership with DHL for international expansion.

Read more »

grow money, wealth build
Coronavirus

Passive Income Seekers: 1 Growth Stock Offering Lifelong Dividends

Passive income isn't just for energy stocks any more. This growth stock has seen 35% growth in the last month,…

Read more »