Investing in mining stocks can help you gain exposure to commodities such as gold, silver, copper, and lithium. The performance of mining stocks is tied to the prices of the commodities they mine. So, these companies should deliver outsized gains during periods of economic expansion and trail the markets when sentiment turns bearish.
In this article, I have shortlisted one gold and one lithium mining stock you can consider buying right now. Let’s dive deeper.
Lithium Americas stock
Lithium is an elemental metal used to manufacture batteries. It is a hot commodity that should experience strong demand from the worldwide shift towards electric vehicles. In fact, lithium prices surged roughly 1,000% between the end of 2020 and 2022.
However, headwinds such as inflation and rising interest rates have led to sluggish demand for electric vehicles (EVs) globally, leading to a drawdown in lithium prices in the last 18 months. While the oversupply of lithium might weigh heavily on prices in the near term, soaring battery demand from EVs and energy storage solutions should boost demand in the upcoming decade.
Additionally, the Infrastructure Investment and Jobs Act south of the border allocated US$5 billion in federal funding to build EV charging stations. The Inflation Reduction Act was recently put into motion, providing credits for consumers as the U.S. wants EVs to account for 50% of new auto sales by 2030.
In addition, new-age auto manufacturers such as Tesla and Nio and legacy players such as Ford and General Motors are also eying this highly lucrative segment. The EV and battery storage market is expected to expand at an enviable pace, making Lithium Americas (TSX: LAC) a top investment choice right now.
Lithium Americas is an ideal investment for investors with a high-risk appetite. Valued at $883 million by market cap, Lithium Americas is a pre-revenue company, which suggests it is a speculative bet right now. However, it is building lithium extraction sites in South America in partnership with Ganfeng Lithium.
Lithium Americas also completed a feasibility study in Nevada and has already begun construction in the Silver State. Further, Lithium Americas has an offtake agreement for raw lithium with GM.
Analysts remain bullish and expect LAC stock to more than double in the next 12 months.
Barrick Gold stock
Among the largest mining companies globally, Barrick Gold (TSX: ABX) is valued at $30.5 billion by market cap. While gold prices have ticked higher in the last five years, Barrick Gold stock has returned “just” 64% in dividend-adjusted gains since May 2019.
Due to higher commodity prices, Barrick Gold is forecast to increase adjusted earnings from US$0.84 per share in 2023 to US$1.07 per share in 2024 and US$1.37 per share in 2025. Priced at 16.8 times forward earnings, ABX stock is poised for a breakout, especially if gold prices gain pace.
Gold has an inverse relation with interest rates. So, if interest rates are cut by the end of 2024, prices of the precious metal should move higher. Moreover, gold thrives during periods of economic turmoil and diversifies your portfolio.
In addition to its attractive valuation, Barrick Gold pays shareholders an annual dividend of US$0.40 per share, indicating a yield of 2.3%. Analysts tracking ABX stock expect it to surge close to 27% in the next 12 months.
