The Canadian mining sector hasn’t exactly been doing well lately. These stocks had a rough year in 2023, with a strong start only to lose all their gains, falling into negative territory as of writing. Prices of commodities and natural resources soared in the beginning due to war in Ukraine, with a 27% gain in Canadian mining stocks. However, by mid-April, higher interest rates were put into action to combat inflation. This weighed heavily on a sector reliant on debt. Now, Canadian mining stocks have fallen significantly.
But does this mean you should get out, or get in on a deal? Let’s look at reasons to buy, sell, or hold this sector.
Buy
Canadian mining stocks do offer diversification for your portfolio. They can help diversify holdings and reduce overall risk by introducing assets that may not always move in sync with the broader market. It also provides exposure to different and rising commodity prices. This can provide leverage exposure as the price of minerals increases, with profits and potentially stock prices moving upwards as well.
What’s more, Canadian mining stocks often offer dividend payouts, creating a regular stream of income while you wait on more mineral production. This can be attractive for those seeking income during periods of higher interest rates.
And then of course comes the big reason: growth. The mining sector offers high-growth potential, particularly for those exploring and developing new mines. This comes with risk as well, but also the chance for huge rewards in a recovering market.
Sell
If you’re considering selling the sector, there are reasons to do this as well. Short-term market conditions have created a negative impact on Canadian mining stocks. If this persists, investors may see even more losses rather than the gains they hoped for.
The economic slowdown doesn’t help, as a depression in commodity prices impacts the profitability of these mining companies. This has led to the stock price decline, which likely won’t be lifted until rate hikes come to an end, and indeed reverse.
Plus, both investors and analysts have viewed the area as volatile. This has put selling pressure on the sector, driving down share prices.
Hold
If you’re already in Canadian mining stocks, it might be best to hold at this point. The long-term demand for minerals remains strong. These minerals are used for technology, infrastructure, and clean energy, with the entire area forecast to grow. Especially as population and urbanization increases, this should help create long-term profitability.
Right now also looks like a good time considering many stocks, though down, are undervalued. Lower stock prices provide a good buying opportunity for investors banking on a rebound. Though further analysis is needed. You could therefore seek out stocks with strong fundamentals, diverse operations, and a focus on responsible mining practices.
One to consider in this case is Teck Resources (TSX: TECK.B). The company focuses on copper, zinc, and steelmaking coal. This last part, however, is being sold off into its own company, providing even more opportunities for investors. Earnings have grown significantly over the last five years, with revenue up 8.2% on average per year.
Shares are now down 5% in the last year, but up 13% since bottoming out in November. So now could be the time to get in on a rebound. Especially with a dividend yield at 0.94% and trading at 11.6 times earnings. So if you’re looking for a stock that hits all the targets, I would consider Tech stock above other Canadian mining stocks at this level.
