The gold mining stocks could be a great value buy for Canadian investors who want most of a “juiced” way to play the continued strength in the price of gold. Undoubtedly, gold’s run hasn’t been nearly as shiny as silver’s, at least in recent months, but that’s no reason to give up on the gold trade, especially amid an immense amount of macro unknowns and growing geopolitical woes.
Indeed, it only seems that the list of the stock market’s worries is increasing over time. Whether we’re talking about some new tariff threats or an escalation in conflict across parts of the globe, the headlines are sure to leave investors with a sense of cautiousness or even bearishness. In any case, reacting to what most others have already responded to is not a formula for making money in markets.
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An uncertain time for markets, a great time for gold
While such macro headwinds could certainly pave the way for extreme volatility and perhaps the occasional bear market (a 20% fall from peak to trough), I think that hedging one’s TFSA (Tax-Free Savings Account) portfolio with precious metals can be a smart way to go. Indeed, gold doesn’t tend to be influenced by moves made in the stock market. Indeed, on those truly scary days for stocks, it’s gold that may rise as investors look to take on more of a safe, secure position as they ride out the waves ahead.
Personally, I think gold bullion and gold ETFs are the best way to lower your portfolio’s overall beta (correlation to the S&P 500). But if you’re looking to play gold from a higher-upside angle, the miners are tough to beat. Further, the mining stocks also seem to be a way to get a better bang for your buck at current levels.
Barrick Gold: It’s my top gold mining pick for summer
Take shares of Barrick Gold (TSX: ABX), a well-run miner that goes for just 16.0 times trailing price to earnings (P/E). That’s a dirt-cheap multiple that I do not believe fully reflects the strength in gold and the potential for momentum in the shiny yellow metal to carry over well into year’s end.
Of course, the levered gold plays can also fall faster and further than the price of bullion. In any case, I find ABX shares to be a bountiful long-term hold for investors looking to get paid to wait (1.92% yield) while enjoying a 0.32 beta, which essentially means ABX stock moves in its own way, rather than following the lead of the market in terms of direction and the magnitude of a daily move.
Apart from being a cost-effective way to generate passive income (one of the most lucrative gold plays on the market) and having a low beta, the firm also has some promising projects alongside an outstanding $1 billion buyback program announced at the start of the year.
Indeed, when shares are cheap, repurchases tend to be one of the best ways to build long-term value for shareholders. In short, Barrick is a fantastic buy this July. And while any gold mining stock would likely be a prudent bet, I have to favour ABX above the pack at today’s valuations.
