Your TFSA (Tax-Free Savings Account) is meant for sound investing over a long-term time horizon. If you chased what was hot at any given moment in the back half of 2020 or the euphoric rise of 2021, you likely got hurt. Undoubtedly, momentum investing or trading (especially on a margin) can be a dangerous game, and one that’s not meant for TFSA investors.
With the risk appetite now reversed, this piece will focus on two intriguing commodity stocks that can help lower your portfolio’s correlation to the broader markets ahead of what could be a recession year. Indeed, various bulls haven’t given up hope. Some think inflation will crash from here, and 2022 will finish the year in the green. Though it’s been such a long time since we’ve had a big down year, I think the stage could be set for solid gains in 2023, even if the world economy tumbles into an economic downturn.
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TFSA investors: Betting on commodities for a less-correlated return
At this juncture, the biggest risk for investors is if inflation doesn’t back off as quickly as central banks think it will. Interest rate hikes are a great way to drive down inflation. But at the end of the day, it takes time for higher rates to work their effect. Further, we may not feel the impact of coming rate hikes until after the recession finally hits. In any case, commodities seem like a great middle ground for investors who want to limit their risk without limiting their rewards potential substantially.
In this piece, we’ll have a look at agricultural commodity producer Nutrien (TSX: NTR)(NYSE: NTR) and premier gold miner Agnico Eagle Gold (TSX: AEM)(NYSE: AEM). Both names are great places to invest an extra $12,000 of unused TFSA contribution cash.
Nutrien
Nutrien stock has been on quite a roller-coaster ride over the past year, sinking around 35% from its peak before posting a remarkable recovery to around $120 per share — where the stock sits today. Down just north of 16% from its highs, Nutrien stock finds itself within throwing distance of new heights. With another solid quarter in the books (revenue surged over 90% quarter over quarter) and a fresh upgrade courtesy of Scotiabank and robust nitrogen prices, it seems like few things can stand in the way of the stock’s current rally.
Though the best time to buy the dip has gone, I still think there’s incredible value to be had for long-term shareholders at today’s valuations. The stock trades at just 7.4 times trailing price to earnings (P/E), which is well below historical averages. Given the industry windfall of higher agricultural commodity prices, Nutrien will have a chance to continue raking in historic sums of cash. At 5.6 times price to cash flow (P/CF), Nutrien is a terrific way to score lowly correlated (0.89 beta) gains in a recession year.
Agnico Eagle Gold
Agnico Eagle Gold is a terrific gold miner that’s caught in a bit of a funk, down around 22% over the past year. Though the precious metals miner has sagged amid weak gold prices, the firm continues to put its foot to the gas, with 3.2-3.4 million ounces of gold production still on the table for 2022. Undoubtedly, if high inflation and profound uncertainty can’t move the price of gold higher, it’s tough to imagine any scenario where gold shines again.
At this juncture, gold is an under-owned asset, in my opinion. With a recession on the horizon and the ongoing Ukraine-Russia crisis, gold may have the means to break the US$2,000-per-ounce level, perhaps once “crypto winter” reaches its coldest. With a 3.7% dividend yield, it’s tough to top AEM stock at these levels.
