Last year provided some real economic turmoil via the COVID-19 pandemic. Indeed, governments have responded accordingly. Tremendous amounts of stimulus have improved the economic outlook. However, these stimulus measures have also brought about increasing inflation expectations.
Some investors are becoming concerned that inflation and rising bond yields could result in some volatility on the horizon. Accordingly, many investors are now re-orienting their portfolios toward defensive plays and stocks that can act as a hedge against inflation, like gold.
While Bitcoin (the “new gold”) has performed exceptionally well throughout 2020, physical gold’s underperformance was noticeable and surprising. That being said, Kirkland Lake Gold (TSX:KL)(NYSE:KL) remains one of my top picks for April. Indeed, I think the market is just taking a breather at the moment. Investors should, too. Gold’s fundamentals remain strong, as does the ownership thesis for deep-value picks like Kirkland Lake today.
Kirkland’s fundamentals speak volumes
When compared to other stocks, Kirkland is dirt cheap right now.
While gold miners have underperformed as of late, a valuation of 11 times earnings makes this firm stand out from the others. Apart from a clean balance sheet, it also generates a tremendous amount of free cash flow at current gold prices.
Those who believe gold prices will continue to rise ought to be buying this stock today. It’s one of the cheapest, fundamentally sound investments on the TSX today. Additionally, its got one of the best balance sheets in any sector.
Kirkland Lake has achieved this position through excellent operating efficiencies and prudent strategic management. The company’s all-inclusive sustaining costs to remain extremely low, providing excellent margins currently. The company essentially has no debt and enough liquidity to go on an acquisition spree. From a purely fundamental standpoint, I believe Kirkland Lake has the potential to vastly outperform the broader market at least for the next 12 months.
Acquisitions and hedging against inflation
Trading around $44 at the time of writing, it appears that this company is severely undervalued compared to its fair price. This is highly beneficial for long-term investors, who can jump aboard at dirt-cheap prices and reap the benefits of capital appreciation, especially if an acquisition is on its way.
One of Kirkland’s several high-grade mines in Australia is nearing the end of its lifespan. This has prompted several shareholders to believe that this firm might be on its way to acquire more assets through M&A. The company’s Detour acquisition was booed by the markets, though it has produced some impressive drilling results of late. Indeed, I think there’s ample room for Kirkland Lake to pick up another high-grade mine to boost its overall metrics.
For the time being, given where gold is trading at today, Kirkland Lake is cheap — extremely cheap. There’s really no other comparable deep value play on the TSX I like more today. I’d highly recommend investors consider this stock today.
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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 Chris MacDonald has no position in any of the stocks mentioned.