When I wrote about this company in May, I mentioned that it was risky. I still feel it is risky — perhaps more so now than it was earlier in the year. Sharp price rises tend to make everything less appealing. With HIVE flying upwards, is it a good idea to buy shares today?

I’m still holding at these levels

HIVE is very much reliant on Bitcoin and Ethereum’s performance. At the moment, Bitcoin is hovering around its all-time high. Should the cryptocurrency rocket higher, you could be reasonably assured that the mining company will follow it upwards. If you believe that cryptocurrencies are going to continue moving upwards, this is a leveraged way to participate in further price movement.

Cryptocurrencies could potentially move significantly in the future. Institutional investors are beginning to move into the new sector. This interest could drive prices higher as more investors chase an ever-shrinking supply of Bitcoin. The market is still tiny. Even today, it is less than US$500 billion. This means any significant increase in interest could drive up coin values considerably. HIVE is a way to participate without needing to buy cryptocurrencies.

Operations

The company currently has a fair amount of cash and crypto on hand. As of September 2020, the company had US$5.1 million in cash and US$9.7 million in receivables and prepaids. It also has US$3.5 in digital currencies. I would assume that the digital currency part of its balance sheet would be considerably higher now given the fact that Bitcoin has practically doubled.

Its operations are entirely funded through the sale of mined coins. This strategy makes HIVE a solid potential money maker. The majority of its revenues come from the two top coins. Both of these coins are having excellent runs this year, adding to the company’s revenues.

Aside from its Canadian operations, HIVE also has mining units in other, cooler parts of the world. These include 100%-owned operations in Iceland and Sweden. The operations in all three jurisdictions are also powered by renewable energy sources such as hydroelectricity and geothermal power. The environmentally responsible operations negate one of the major criticisms of cryptocurrencies. Extensive power consumption is not as big an issue.

The bottom line

I am very bullish on the future of cryptocurrencies, especially Bitcoin and Ethereum. As a publicly listed company, HIVE has the potential to be a major player in the sector. Its geographically diversified locations give the company access to clean, low-cost energy. 

Owning this company is one way to gain access to this sector. Crypto investments could help diversify your portfolio against excessive money-printing globally. I believe that investing in cryptocurrency efforts, in addition to gold and silver, might be the best way to profit from a significant fall in fiat currencies going forward.

The post Bitcoin Is Hot! Should You Buy This Crypto Mining Stock? appeared first on The Motley Fool Canada.

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Although there were some scares during the March stock market crash, the stock has still done quite well. If you’d bought it around $10 when it was at its lows, you are truly laughing all the way to the bank. I didn’t, unfortunately, as I already felt I had enough shares at the time. If you did, you are sitting at around a 700% gain in your shares. 

Is it still a good buy today?

Given the fact that this stock has already climbed so high this year, is it reasonable to assume that it will continue to rocket higher in the years ahead? There are a number of things to consider in this respect — factors that were not a consideration almost a year ago.

Stocks are very expensive in general, for one thing. This fact makes investing in stocks right now far riskier than they were when the economy appeared somewhat better. 

Furthermore, Lightspeed focused strongly on service sectors such as hotels and restaurants. Before the global economy came to a screeching halt, these sectors were growth areas for the company. Now, the same businesses are liabilities. Of course, the company is increasing its retail exposure to mitigate exposure to the hospitality sector. 

Now, the good news

Revenue in the second quarter grew 62% year over year. Payments revenue alone grew 300% over the period. In fact, Lightspeed’s business model is more appealing to me than other online-based businesses. When the pandemic lockdowns end and we get back to a semblance of normal, other online businesses may lose part of their market share. Lightspeed, however, will continue to benefit from a boost in hospitality revenue as those companies come back.

The only aspect of this business that scares me is the $19.5 million net loss it posted in the quarter. Although the company is in growth mode, I still get a little worried when I see losses on the earnings reports. Nevertheless, the loss was primarily attributed to one-time items, so hopefully, that starts to turn around as the company matures.

The company is also very active in its growth objectives through acquisitions. It recently acquired the U.S.-based cloud commerce company ShopKeep to expand its presence in the United States. It also recently announced that it acquired Upserve to expand its restaurant point of sale business at a cost of around $430 million in cash and stock.

The bottom line

I like Lightspeed’s industry, its business model, and the future growth potential. Q2 2020 earnings proved that it is still growing in spite of a tough economic environment. Nevertheless, it is a very expensive stock trading at a high valuation. That could mean some volatility going forward.

Personally, I am going to hang on to my shares and see what happens. I only ever put a small amount into these growth stocks, so an outsized potential return is far more appealing to me than the possibility of limited loss. You could still get in at these prices, as long as you know that there is definitely downside risk in the name. 

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The good news is, however, that the downside in commodities is far more limited in comparison to the upside potential. Most commodities are so beaten down that it is pretty easy to see that there is the potential for massive gains when markets do recover.

Oil stocks are attractive

Oil stocks are recovering slightly in recent weeks, but are still a long way from being overvalued. With prices at rock-bottom levels, it is not hard to choose excellent companies at reasonable prices. Don’t bother looking too far down the food chain in these stocks. Large-cap oil producers will have enough leverage.

One stock that is sitting at a very enticing level is TC Pipelines LP (TSX:TRP)(NYSE:TRP). A couple of weeks ago, the pipeline giant was very near to its 52-week low. That’s right, you could have picked up this stock with a better-than-6% yield at prices mirroring the March lows. 

Even so, this pipeline is still trading at a reasonable price-to-earnings ratio of 11 times trailing earnings. The pipeline giant provides more than 25% of the natural gas North Americans use to heat their homes. It also fully owns or has interests in seven Canadian power generation facilities.

Even though the stock recently recovered slightly, it still has an attractive yield of just under 6%. The dividend has been growing for years, including an 8% increase earlier this year. Despite the 2020 craziness, this resilient company is still targeting 8-10% dividend increases through 2021 and healthy 5-7% increases thereafter.

The wise choice

What investors need to realize is that owning energy stocks like TC Pipelines provides you with an excellent value opportunity in a world where cash flow is hard to come by. This company proved that it is possible to make money and return it to shareholders in spite of challenging macroeconomic environments.

Of course, if there is anything the past decade has shown me, it is that patience is required to make money in commodity-related stocks. Owning these stocks can be a humbling experience, but in the long run, it will be worth it. If you have the stomach to sit tight and the ability to wait, the upside moves can be huge.

The bottom line

You don’t need to buy what everyone else is buying to make money. In fact, most of the money will be made in the unloved areas outside of the mainstream. This is doubly true for the challenging commodity market. 

Oil stocks are one of the most hated sectors at the moment, so there are certainly deals for patient investors. A stock like TC Pipelines will give you exposure to the market, high potential returns, and solid cash flow while you wait for the sector to rip higher.

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Gold companies as income stocks

After several years of austerity and pain, the gold sector is in excellent shape. Companies are increasing payouts quickly as balance sheets are bulging with cash due to a number of reasons. 

First of all, gold companies are earning gold at or near all-time highs. Income grew significantly this year even in the face of challenges set by the global pandemic. This is especially true for Canadian companies that also benefit from a low Canadian dollar as gold is priced in U.S. dollars.

Another benefit is the low price of oil and fuel. Gold mining companies use an enormous amount of fuel to power their equipment. Compare today’s oil price of about $40 a barrel as compared to the prices of well over $100 a barrel they were facing the last time gold was at all-time highs. That is a massive cost-benefit that goes straight to these company’s profit margins.

Besides gold prices and lower costs, gold companies also benefit from the macroeconomic tailwinds that could propel gold higher. Back in 2012, everyone believed that eventually central banks would raise interest rates and get national debt levels under control. 

With that pretense out of the way, central banks are now aiming to print like there is no tomorrow and keep rates low for the distant, foreseeable future. Monetary expansion without end is an excellent argument to own gold. Gold tends to benefit from higher inflation levels and low interest rates, which is exactly what central banks seem to be aiming to achieve.

Dividends

Just look at some recent earnings and notice how the excellent environment for gold has affected many companies’ dividends. In Q3 2019, one of Canada’s strongest gold producers, Agnico Eagle Mines Ltd. (TSX:AEM)(NYSE:AEM), increased its dividend by 75%. Currently, this gives the company a dividend yield of almost 2%. Given that you get a yield of less than 1% from most savings accounts these days, the dividend is looking pretty attractive. 

Furthermore, Agnico Eagle has great earnings to support that dividend. The company is currently producing at well over US$1800 an ounce with cash costs of about $805 an ounce. Cash provided by operating activities in Q3 2020 was $426.5 compared to $349.2 in the third quarter of 2019, leading to a healthy increase in free cash flow generation.

The bottom line

At the moment, the gold sector has one of the brightest futures of all publicly traded sectors. Most sectors, technology especially comes to mind, are riddled with dangers and pitfalls. Gold stocks tend to buck this trend, offering investors a way to get strong dividends while benefiting from macro forces that threaten to decimate other industries.

The wind is at the gold producers’ sails as is clearly evident in Agnico Eagle’s earnings. Right now is the time to own gold stocks. The macro forces are pushing earnings higher, and soon people are going to notice.

The post Gold Stocks: The New Dividend All-Stars appeared first on The Motley Fool Canada.

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The wind is at gold’s sails moving forward. There is no political will to stop money-printing across the world. Practically every central bank is manipulating interest rates to well below market levels in an effort to increase inflation. This will hurt savers on two fronts: through lower interest on savings and increased inflation, which will erode the purchasing power — essentially, another tax on savers.

Gold as a saver’s alternative

The good news is, there is a way investors can maintain purchasing power. By investing in gold miners, investors may be able to actually benefit from the inflationary trend. As the purchasing power of dollars decreases, it takes more dollars to purchase an ounce of the metal. That means that gold, when priced in fiat currency, becomes more valuable.

Gold miners are in the sweet spot

Gold miners right now are in one of the best situations they have ever faced — even better than the situation in the early 2010s. The margins on these companies are shooting higher for a variety of reasons, with the gold price only being one attribute.

Besides price, gold miners are benefitting enormously from the fall in the price of oil. Energy prices are one of the major input costs to gold companies. If you consider that in the early 2010s, the price of oil was over $100 a barrel, think about how this approximately 60% reduction in costs has lowered the total cost of production. That money goes straight to free cash flow, allowing companies to increase dividends, pay down debt, or buy back shares.

An example of profitability

Take Kinross Gold (TSX:K)(NYSE:KGC), for example. This company is starting to move higher, but the upward trajectory is only just beginning. This company has its financial house in order and is going to do very well in the coming years.

The stock is starting to look cheap on valuation, as its profitability continues to increase. The current price-to-earnings (P/E) ratio as of this writing was about 13.8 times trailing earnings. This P/E ratio indicates that profitability is starting to increase. Operating cash flow increased by 30% year over year as compared to Q2 2019. The company also reported that it had over $1.5 billion on its balance sheet in the quarter — a fantastic amount of cash to work with.

Dividends

Although I don’t believe in buying a commodity company solely for its dividend, It is a nice bonus should the company be profitable to pay one. Kinross cut its dividend seven years ago in response to the drop in gold prices and the resulting impact on its profitability. That fact may have impacted some investors who feel a dividend is a necessary part of their investing strategy.

Well, Kinross announced that it is reinstating a dividend policy. This is positive for the company on two fronts. First of all, it indicates that the balance sheet and earnings potential is strong enough to support a dividend going forward. Also, it will likely draw income-starved investors into the sector who may not have otherwise bought shares.

The Foolish takeaway

There is a strong possibility that gold could move further to the upside. If gold continues to trend higher, gold stocks will be even more profitable than they already are at these levels. Buying a stock like Kinross will give you leveraged exposure to the gold price and a small dividend as well. Protect your wealth and start buying gold stocks today.

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An issue investors face, however, is the fact that there are so many stocks to choose from. For the average retail investor, the choices can be overwhelming. If you want to find a stock to buy, a good way to do so may be to look at what the experts are doing. One of the biggest experts to look at in the precious metals sector would be Eric Sprott. 

What is Sprott buying?

Eric Sprott recently disclosed a purchase of 5,000,000 shares of silver producer First Majestic Silver (TSX:FR)(NYSE:AG) at an average price of $15.60 a share. As of this writing, you could buy shares at a price of $15.90 a share, only slightly higher than the great investor. 

You can be quite sure that Sprott isn’t going to trade out at this price. He isn’t looking for a small move in the silver price. He is looking for a big move that he anticipates should silver prices shoot higher. 

Central bank money printing is undermining confidence in currencies globally. This inflationary influence has already been evident in gold and silver prices so far this year. Silver, for example, is up far more than 100% from its March lows of around $12 an ounce.

Furthermore, interest rates are now expected to remain lower for longer in the United States and most likely every other country. The Federal Reserve’s recent announcement that the rates will remain at 0% until at least 2023 certainly is a bullish case for gold.

Why First Majestic?

First Majestic has a number of positive factors that likely drew the famous investor to the sector. For one thing, the company is focused on silver, a metal that has a huge industrial demand in addition to its monetary status. Green energy projects, such as solar panels for example, use an enormous amount of silver. The same is true for smart electronics and batteries.

It also sits at a historically low gold-to-silver price ratio, which currently sits at around 72. That means it takes about 72 ounces of silver at present to buy one ounce of silver. Historically, a fair price ratio is about 15. That means that it is still likely for silver to move up to get to its historical ratio.

First Majestic also benefits from the fact that it operates in the Americas. Its production areas are fairly stable geopolitical regions. Within these regions, it also has producing mines as well as many that are in the exploration and development stages. With silver prices increasing, it is likely that it will ramp up production and development on these new projects.

Financial considerations

First Majestic is a fairly pure play in silver, with about 60% of its revenues coming from the metal and the rest from gold. Revenues were down by 58% in the second quarter, although this reduction was primarily due to COVID-19 effects. 

The company also reported a loss of $0.10 a share in the second quarter, which, at first glance, appears to be negative. However, one main reason for the loss was the decision to stockpile metal instead of selling it in order to wait for higher prices. So far, the strategy appears to be working out for the company, with the current price of $27 an ounce being much higher that the second-quarter price.

The company also has a strong balance sheet, with $128 million in cash and cash equivalents as of August 4, 2020. 

The bottom line

First Majestic is a great way to play a rise in the silver price. Don’t take my word for it. Take the actions of billionaire investor Eric Sprott as your guide. Partner up with a long-term investor like him if you want to capitalize on a big move in silver going forward. Join the smart money today.

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If you choose to go with the subsidiaries, then you have to be aware of the risks inherent in each of the stocks. In this article, I want to go through three of my favourite Brookfield subsidiaries and rank them from what I perceive to be the least risky to the highest risk investments.

Lowest risk

In my mind, Brookfield Infrastructure Corp. (TSX:BIPC)(NYSE:BIPC) is the lowest risk investment of the three listed here. Its services are in high demand and span a lot of different industries. It owns pipelines, data centres, and many other infrastructure properties. The diversification should protect the company from many bumps. Its data centres in particular are very appealing since these will remain in high demand as the world continues on its digital journey.

It is not a riskless investment, of course. It has a large amount of debt on its books, as is the case with practically every Brookfield investment. Also, there is the possibility that its pipelines could decrease in value as the world moves from oil to green energy.

Medium risk

Much of the risk from Brookfield Renewable Energy Corp. (TSX:BEPC)(NYSE:BEPC) comes from its valuation.  It is a renewable energy company. There are a lot of reasons to be excited about the progress of renewable energy in the future. It offers investors steady earnings and long-term contracts that help to stabilize debt repayments and dividends. Although utility companies are usually considered to be low-risk investments, I put this in the medium-risk category for primarily two major reasons. 

The first major reason is the fact that there is also a large amount of debt that the company possesses. Debt can be deadly for any company, and Brookfield Renewable certainly has a lot of it. That being said, there aren’t any major risks to its cash flows at the moment and energy remains in high demand. Furthermore, the shares trade at a very high valuation leaving them open to correction. 

Highest risk

It probably isn’t surprising to anyone that Brookfield Property Partners Ltd. (TSX:BPY.UN)(NASDAQ:BPY) is the riskiest choice of the three. There are three reasons for the increased risk, as I see it.

The first reason is the risk of technological disruption. The threat of a move from bricks and mortar to online work environments was already a concern before the global pandemic. The lockdown shock accelerated the transition, with many companies now contemplating whether they should even have their employees return to an office environment. Its retail locations suffer from the same predicament.

The second threat is its debt load. As is the case with many real estate companies, Brookfield Property is highly leveraged and has a large amount of debt. Should tenants stop paying rent for good, the decrease in cash flow would negatively impact its ability to service debt and increase distributions.

Finally, this is a limited partnership with a rather complicated distribution structure. That means it is best held in a tax-advantaged account like a TFSA. That will help you keep any gains if it increases, but will be a disadvantage should the stock collapse. If a further fall in the stock price occurs, then investors will not have the opportunity to write off losses.

The bottom line

I focused on the risk profiles in these stocks, but I want to make it known that I like and own all of them. However, it is important to keep in mind that each of these investments has different levels of risk. I believe that they will all do well over time, however, approach some Brookfield investments with more caution than others.

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I suppose it makes sense from their point of view. Global economies, including the U.S. and Canada, now have a ton of debt on their balance sheets. The increased debt loads are essentially liabilities that the central banks and governments have transferred from companies and individuals to public ledgers in an attempt to keep economies moving. 

It was no secret that many countries at all levels were highly indebted to going into the health crisis. We were in no shape to face a crisis, so the government stepped in to keep things going. 

Inflation

There are basically three ways for countries to get rid of debt. They can tighten their belts and enforce austerity, pay back debt slowly with increasing domestic earnings, or inflate their way out of debt by increasing inflation, so countries can pay back debt issued with more expensive dollars with cheaper ones as inflation erodes the value of the earlier debt. 

Austerity is painful, as was seen in the case of Greece back in the early 2010s. No one wants to go through a painful period of less spending where standards of living are reduced and jobs are lost. In democratic nations, austerity can be political suicide.

The second way to reduce debt is through debt repayment based on improving economic conditions. At the moment, this possibility seems pretty impossible. We are going through a massive recession that could get worse in a hurry if government supports are reduced.

That leaves debt reduction through inflation. Essentially, this strategy comes down to governments debasing currencies through money printing. Debt borrowed in yesterday’s dollars is cheaper today since they become progressively cheaper as money-printing continues. 

Invisible tax

Although inflation is beneficial for the highly indebted, it is painful for anyone holding cash. Anyone who holds their savings in dollars is taxed by having their spending power taken from them by central banks. You lose purchasing power as your dollar decreases over time.

You can protect yourself by owning an asset like gold. Gold is considered to be a hedge against inflation. One piece of gold stays as one piece of gold. You can’t print more. So, as currencies lose value, gold increases relatively in value.

Gold stocks

If you believe that gold is an inflation hedge, it can pay to own gold stocks. Companies like Yamana Gold (TSX:YRI)(NYSE:AUY) are frequently dividend-paying organizations that are even starting to raise their payouts. Investors no less famous than Warren Buffett have begun buying into gold names, so you have to assume that there is potential for capital appreciation.

Many companies, Yamana included, are even raising their payouts. Yamana, for example, has raised its dividend four times over the past couple of years. Those increases amount to a total cumulative increase of 250% over the past year. At the current stock price, Yamana now pays a dividend of 1.22%.

If inflation is a thing, and gold prices continue to rise, then it is reasonable to assume that gold companies will continue to generate increasing earnings and free cash flow. In Q2 2020, for example, Yamana generated 60.3 million in free cash flow. That powered its dividends as well as $101 million in net debt repayments.

The bottom line

Inflation kills your savings, but it is a boon for the gold sector. It is wise to have holdings of gold companies like Yamana. Many companies are using their increasing free cash flow to do the right things such as increasing dividends and paying down debt. Those choices will pay off in a rising gold price environment and protect your investments from inflation.

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Now, after an unprecedented 2020, I finally changed my mind. I still think the banks are quite well run and are excellent companies with long histories of dividends and profit growth. I am not selling all my shares. Rather than being a net buyer of Canadian banks, though, I am now a net seller. There are several reasons for this about-face in my thinking that I will outline in this article.

Bubbles, bubbles everywhere

For the better part of the past decade, the financial system was delicate. It never recovered from the 2008-09 financial crisis. There was a Bull Run in stocks, to be sure, but much of this was debt-fuelled and inflationary. Now the massive amounts of money-printing and artificially low-interest rates are fuelling a lot of exuberance.

As real estate is very sensitive to interest rates, it is easy to see that it would be massively affected by a low-rate policy. This is clearly visible in the recent reports that real estate is shooting up globally despite the fact that most countries are in the midst of historical economic contractions. Real estate is frequently a highly leveraged investment. Banks lend out these funds. If real estate collapses, the banks will get hammered.

Even a bank like Royal Bank of Canada (TSX:RY)(NYSE:RY) is not immune to a real estate contraction. In Q1 2020 Royal Bank hiked its loan loss provisions by 500%, effectively cutting its profit in half for the quarter. This may prove to be a temporary measure should housing remain strong. Nevertheless, it does indicate that the bank is worried about its outstanding loans and is exercising caution.

Fragility is innate in banking

Banks run on faith. This faith helps the banks generate huge profits through fractional reserve banking, but it is also the source of their greatest weakness.

If people withdraw money en masse, banks can be in a large amount of trouble. Depositor’s money isn’t in the bank, after all. It is lent out. In fact, more money is lent out than the banks actually have. While this is expansionary for the economy, it’s also a very risky business model if things go badly. There are countless examples of banks collapsing. If you think large banks are not at risk, just go back 10 years and read about a little thing called the financial crisis.

Cryptocurrency banking alternatives

There is another technological advancement that is picking up steam which is beginning to encroach on the banking sector. This advancement is a cryptocurrency alternative called decentralized finance (DeFi). Decentralized finance essentially allows cryptocurrency holders to borrow against their crypto holdings. The loans are overcollateralized, meaning there is often no excessive leverage on many of these lending sites. You can only borrow a percentage of what you have as collateral. The loans are also very easy to take out, which is much easier than doing so at a bank branch. 

While this may be in a nascent stage and I have personally never used it, it still demonstrates how the ancient art of banking may be ripe for technological disruption. If DeFi becomes a true alternative to traditional banking, then a bank like Royal may begin to feel some of their lending being siphoned off by the decentralized system. 

The bottom line

Never before have I recommended for any investor to sell a Canadian bank stock. But right now seems like it is an unusual time in our history. The risks to our financial system are very high, so it is a good idea to lock in some profits in the banks in case things start to get worse.

Don’t sell all of your bank stocks — I’m not. I still have a fair amount of Royal Bank that I will continue to hold. However, the large banks have started to bounce back, so if you made some profits, you might be wise to sell some shares and keep that cash on the side.

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Furthermore, Buffett is also selling American banks. This further adds suspicion to what might be a bearish outlook on his part. I won’t presume to know his thought pattern or his outlook, but this certainly seems to be the way he is heading.

The bull case for gold stocks

I am bullish on gold and gold stocks going forward. I have been for a long time, and this latest news helps to solidify my opinion. It is entirely possible that there will be more US dollar bearishness as time goes forward. Money-printing, historically speaking, is a bad idea. A lower U.S. dollar could be the result.

Gold is traditionally a safe haven in times of crisis. With the metal recently hitting new all-time highs, it is likely that more investors will be drawn to the space. 

Is Buffett’s choice a good pick for a gold stock?

Buffett decided to buy 21 million shares of Barrick Gold Corp. (TSX:ABX)(NYSE:GOLD) for Berkshire Hathaway Inc. (NYSE:BRK).  I wish I bought it back in 2019, though, so I could have more than doubled my money by now. Oh well, c’est la vie.

But is it still a good buy today after its run? The answer is a resounding yes. Barrick is a huge gold company with a market cap of about $70 billion at the time of this writing. It’s very diversified with projects worldwide.

The company pays a small dividend, which might be a comfort to income-focused investors. Right now, the dividend works out to a yield of around 1%. This dividend was recently increased by 14% in the first quarter of 2020 and the dividend may be set to increase further.

The dividend is covered with a free cash flow of $522 million in the second quarter. This represents a 20% increase in free cash flow from Q1 2020. If gold prices remain strong, you can be reasonably sure that the company will continue generating strong free cash flow going forward.

The bottom line

Gold is an essential addition to any investor’s portfolio at the moment. There is a very high probability that the U.S. dollar could weaken significantly over the next few years. It is difficult to imagine that all this money-printing could be done without consequence.

For once, Warren Buffett seems to agree. At the very least, he sees the upside potential for gold stocks that will benefit from stronger prices. He has chosen to put his money behind gold stocks in the form of Barrick, a giant in the sector. Investors would be wise to do the same with this company or others in the sector.

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