Many investors have a set of favourite stocks that they tend to keep an eye on. They may also leverage filters and certain tools to identify outliers like heavily discounted, undersold, or rapidly growing stocks in any given market. But it’s difficult to keep an eye on a sizable number of stocks at once and track their movement.
One healthy middle ground is to monitor sectors and sector-wide trends. Significant negative or positive trends can help you make informed decisions about stocks from these sectors you already have or might consider buying. For November, we can look into the gold and energy sectors and how they behave in the current geopolitical and economic climate.
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Gold stocks
The last few weeks have been favourable for most gold mining stocks, including Vancouver-based B2Gold (TSX:BTO). The stock rose over 13% in the last four weeks, and the current direction is upward as well. The easiest explanation is the rising gold prices, which have been going up for the past five months.
The last catalyst for gold prices increasing and gold mining stocks attaining a healthy bullish momentum was the Fed and other regulatory bodies around the globe increasing interest rates to control inflation. That’s not the case now, as the rate cuts are here. Many experts believe that the current forces behind rising gold prices are geopolitical instability and economic uncertainty.
Gold is a safe-haven asset that tends to retain its value even when currencies and other assets are vulnerable to negative market movements. This is why investors add gold stocks and exchange-traded funds to their portfolios whenever they are uncertain about the economy or at least the market. Apart from BTO’s current bullish momentum, a good reason to buy it is its 4.5% yield.
Energy stocks
While the energy sector hasn’t technically slumped yet, the performance of the TSX Energy Index hasn’t been very promising in the last six months. It has fallen by about 6.75% and has mostly been fluctuating. Ironically, the performance of some energy stocks has been highly contrary compared to the index. Pembina Pipeline (TSX:PPL) is a prime example. The stock has risen 20% in the last six months.
However, it is following the most recent downward direction of the index. The primary catalyst behind this slump is the geo-political conflicts involving one of the largest gas producers in the world. Natural gas prices have already slumped hard, and oil prices have been going down (unsteadily) for months now.
Energy companies like Pembina are relatively safer picks because of their business model (mid-stream), which is not as affected by energy prices as upstream and downstream companies are. But the rest may be on the verge of a substantial correction phase.
Foolish takeaway
The answer as to what’s a better pick in November, gold or energy, is not as straightforward. If you are buying for dividends, the slumping energy stocks might be good picks because you would be able to lock in a healthy yield.
But if you are buying for capital appreciation, gold’s bullish momentum might still be the better choice. Keep in mind that the specific stock within the sector may also have an enormous impact on your return potential.
