Buying gold mining stocks is a common practice when the market is down. As a contrarian asset, gold’s demand tends to rise when the market is weak or there is economic uncertainty of any kind. However, this is a double-edged sword, because when the market goes bullish again, the gold stocks may underperform.
That said, there is at least one gold stock in Canada that you may consider buying in a bull market.
One gold stock to buy in a bull market
As one of the largest gold royalty and streaming companies in the world, Franco-Nevada (TSX:FNV) stands out from the rest of the gold mining sector in Canada anyway. The business model is quite different and relatively safer because instead of running a mining operation itself, it focuses on taking a financial stake in a variety of mining businesses.
Another layer of safety comes in the form of a variety of royalty contracts, which in the most basic forms are revenue and profit shares. Revenue share royalties, again, can take three different forms. Unlike profits, revenue shares offer a higher degree of financial stability to Franco-Nevada, because even if the underlying operation is not profitable, Franco-Nevada still makes money.
The company portfolio has a lot of geographic and asset diversity, as only 55% of the company’s revenues (2022) came from gold. The rest came from other precious metals and even energy sector royalties.
This business model may have been the reason behind the stock’s contrarian performance compared to the other gold companies in Canada. Franco-Nevada stock has been growing quite consistently since 2007. In the last 10 years, which were most bullish apart from the 2020 crash, the stock returned its investors about 340%. The number reaches over 400% if we also add the dividends to the returns.
One gold stock to buy in the bear market
Going bullish in a bear market is a trait most gold mining stocks share, and B2Gold (TSX:BTO) is no exception. Following the 2020 crash, the stock rose by over 150% in half a year. But the stock has mostly fallen since then, and even though the decline hasn’t been smooth or consistent, the stock has lost over half of its value since its 2020 peak.
Despite its market capitalization of around $5.6 billion, it’s among the senior gold producers in Canada. The mining operations are geographically diverse, with three production-stage projects in Mali, Namibia, and the Philippines.
It can be a great pick during a bear market, but there is one reason to buy it in a bull market (when the stock is falling): the dividend. Even now, the stock comes with a generous 4.9% yield, and the payout ratio is quite safe.
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Foolish takeaway
Relatively few gold stocks may be considered viable long-term picks because of their lacklustre performance when the market as a whole is bullish. Franco-Nevada is an exception thanks to its different business model, and even a generous dividend payer like B2Gold can be an exception if you are content with its dividend alone.
