The shiny allure of gold is just as powerful as the tangible solidity of hard assets like real estate, especially when you are disenchanted with the stock market. Gold, whether you buy the metal itself or invest in it through golden companies and ETFs, can provide a powerful hedge against market fluctuations and volatility.
Even though a correction might not be on the horizon yet, if you believe one is coming around, you might consider “gilding” your portfolio.
An intermediate gold producer
Toronto-based Torex Gold Resources (TSX:TXG) has been around since 1980. It has a market capitalization of $1.2 billion, making it more significant and sizeable compared to venture capital gold companies but a smaller player compared to gold giants in the TSX. Still, the company reacted nearly the same way after the pandemic crash — i.e., it had robust growth right after the market crash.
The stock rose 110% within four months of the crash, and it has been coming down relatively swiftly ever since achieving that peak. This makes it a discounted bargain from both a price perspective, but also from a valuation lens, since the company is currently trading at a price-to-earnings of just 4.6. The company has mining operations in Mexico.
A gold and silver mining company
Mining giants like Kinross Gold (TSX:K)(NYSE:KGC) tend to absorb the worst of what the sector has to offer when the stock market is going strong. But it also makes them more likely to explode when the market is in trouble (like during a correction). After the last crash, the stock rose by over 180% in a matter of months to reach its 2020 peak.
But the stock has been sliding down continuously since then, making it more discounted and magnifying the yield, which is now 1.4%. It’s one of the senior gold mining companies headquartered in Canada and has operations in six different countries. It has five mines in the Americas alone, and they are the focal point of Kinross’s production right now.
There are relatively few dividend payers and even fewer aristocrats in the sector, so old and established aristocrats like Franco-Nevada (TSX:FNV)(NYSE:FNV) stand out. This golden aristocrat has been raising its payouts for 13 consecutive years, but the yield of 0.6% is still not a very attractive or compelling number.
But Franco-Nevada offers more. It gives you capital appreciation potential, even when the stock market is strong. It has been relatively erratic but still a consistent grower compared to most other gold companies in the last three years. One reason for this distinctive growth pattern is the nature of its business. The company doesn’t mine gold itself but instead buys royalties and streams from other mining companies.
Gold companies tend to thrive during TSX bear markets, and they slow down once the stock market building momentum. Even though the proper market crash is behind us, a relatively swift recovery might result in an upcoming correction (though it’s difficult to pin down a specific time), giving gold companies a boost in valuation.
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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.