With all the discussions and fear-driven commentary about an AI bubble, it can feel much riskier to put new money into the markets these days, with the TSX Index looking to finish what’s been an astounding year on even stronger note. Indeed, it’s hard to deny that valuations are coming in on the higher end of the range. And while markets are undoubtedly that much pricier than they were when we started the year, a case could be made that the heftier multiples are supported by better fundamentals and growth profiles moving forward.
Indeed, gold prices have been skyrocketing, and given the number of gold miners in the TSX Index, it should be no mystery as to why Canada’s stock market has been even hotter than the AI-heavy S&P 500 and Nasdaq 100 this year.
With gold prices looking to make a move for US$5,000 per ounce at some point next year, perhaps the TSX Index’s S&P-beating streak has yet to conclude. In any case, I think that things are far more complex to dismiss markets as being in a bubble or not in a bubble.
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Don’t be afraid of momentum if the valuation still makes sense!
Paying a fair multiple or even a tiny premium for a durable momentum player that can and likely will find ways to keep winning, I think, can still be a winning proposition for investors. As for chasing soaring stocks with no profits or pre-revenue firms with nothing to go by other than narratives, I think there’s a danger of taking a massive hit to the chin.
Either way, this piece will check in on a stellar high flyer that still looks not only fairly priced, but perhaps fairly inexpensive at current levels.
Kinross: Huge momentum and a modest valuation
Consider shares of gold miner Kinross Gold (TSX:K), which has been off to the races this year, gaining over 155% year to date, thanks in part to higher gold prices and an improved operating track record. For the gold bulls out there looking for a leveraged way to profit from what appears to be a generational rally in the shiny yellow metal, I’d be inclined to keep buying K shares and the broader basket of gold miners on the way up and on any dips, should turbulence be introduced at some point in the coming months.
If you’ve been waiting for a big dip, you’ve been sidelined from a pretty incredible gain. However, with shares down just over 6% from recent highs, I think such a mini-correction is good enough to justify entering with a partial position.
The magnitude of free cash flow could pave the way for very generous dividend hikes moving forward. And with a 14.9 times forward price-to-earnings (P/E) multiple on the shares, I still view Kinross as incredibly cheap despite the past-year momentum. While the commodity miners can be tricky to value, I do believe that if gold keeps marching to US$4,500 per ounce, it’s going to be tough to keep the miners down, especially underrated ones like Kinross, which might be at the top of watchlists due to its modest 0.47% dividend yield.
