Gold stocks and oil stocks are among the most popular commodity stocks out there. Gold is a valuable metal with a multi-thousand year history of use as a currency. Oil is – quite literally – the fuel of the modern economy. Both of them have various properties that make them, at times, attractive investments.
When it comes to investing in gold stocks and oil stocks, there are some important nuances to keep in mind. With gold stocks and oil stocks, you have to pay attention to production levels, corporate expenses, and commodity prices. With commodity futures, only the latter factor is relevant. This makes investing in gold stocks and oil stocks somewhat more complex than betting on the commodities they sell. In this article, I will explore the investment landscape for gold stocks and oil stocks, so you can decide which is a better fit for your portfolio.
Gold stocks: The landscape
The investment landscape in oil stocks is quite vast. It includes everything from established oil companies like Barrick Gold, to junior miners, to companies selling equipment for gold mining.
Established gold miners are a lot like oil companies: they own productive land, produce the commodity on a regular basis, and often pay dividends. The amount of profit and dividends varies with the price of the commodity.
Junior miners are different. They are often sitting on “prospective” (i.e., promising) land and stand to benefit if they find economically viable amounts of gold there. They are usually penny stocks. If they strike gold, then their share prices may shoot up dramatically in a relatively short period of time.
A key difference between gold stocks and oil stocks is the use cases for the metals. Gold is most often used in jewelry, while oil is mostly used for transportation and industry uses. With this difference in mind, let’s move on to our discussion of oil stocks.
Oil stocks
Oil stocks differ from gold stocks in many ways. They tend to be more mature/established, they pay more dividends (often with high yields), and their use case is more practical. For these reasons, “quality” investors tend to be more drawn to oil stocks than gold stocks.
Consider Suncor Energy Inc (TSX: SU) for example. It’s a Canadian oil company that sells crude oil, provides natural gas, and operates gas stations. The gas station chain it owns is called “Petro Canada.” It’s one of the most popular gas station chains in the nation.
How is Suncor Energy doing with its diversified oil and gas business? Pretty well it seems like. Its most recent quarterly release beat on earnings but missed on revenue. In the quarter, the company delivered:
- $6.9 billion in oil sands revenues, up 15%.
- $1.6 billion in earnings, down 21%.
- $1.8 billion in adjusted earnings, unchanged.
- $3.2 billion in cash from operations, up 5.5%.
Overall, it was a decent showing. Reported earnings went down mainly because of non-cash factors, and the cash flow situation was good. On the whole, things looked good for Suncor Energy in Q2.
Gold stocks and oil stocks: Foolish takeaway
Taking everything into account, I personally like oil stocks better than gold stocks. Although oil faces long -term obsolescence risk brought on by alternatives and nuclear, it will always be needed for chemical feed stocks. I can’t say that its price will rise indefinitely, but it’s probably going to be used for the remainder of our lifetimes.
