At first glance, the case for gold stocks to buy appears incredibly challenged right now. One of the biggest impediments to a rising equities market has been the U.S.-China trade war. Recently, though, both sides appear willing to negotiate. Even President Donald Trump, no stranger to angry rhetoric, appeared optimistic for a substantive trade deal.
Wall Street has given Trump the benefit of the doubt, significantly hurting the case for gold stocks to buy. Both the venerable Dow Jones Industrial Average, along with the benchmark S&P 500 have charged to all-time highs. In sharp contrast, gold prices, which have looked so strong this year due to rising fear and uncertainty, have slid downward this month.
But before you get too complacent, Yahoo Finance contributor Rick Newman brought up an excellent question: Why is the Street giving any credibility to Trump? As Newman bluntly put it, “There is, in fact, no trade deal with China.” Further, he provides his readers with a warning from the not-so-distant past:
“Last December, after meeting with Chinese President Xi Jinping, Trump said, ‘It’s an incredible deal. It goes down, certainly, if it happens, it goes down as one of the largest deals ever made.’ If you’re wondering what deal that was, well, yes — there was no deal.”
Thus, I don’t think the thesis for gold stocks to buy is dead. And even if a trade deal materializes, I recently presented my argument for why big banks are in trouble. Namely, the economy is nowhere near as healthy as advertised.
This pressured environment dramatically raises the profile for gold miners. Additionally, don’t ignore the potential for silver stocks to buy.
Newmont Goldcorp (NEM)
Source: Piotr Swat/Shutterstock
Under any economic condition, I believe some exposure to gold and precious metals is prudent. Going 100% into any asset class is simply asking for trouble. That said, I understand the inconveniences involved with buying physical bullion. Thus, if you’re not into gold-based exchange-traded funds like SPDR Gold Trust (NYSEARCA:GLD), then Newmont Goldcorp (NYSE:NEM) and NEM stock could be right for you.
With a market capitalization of $30.3 billion, NEM stock is at time of writing the biggest name among publicly traded gold stocks. And while such stability typically means that Newmont won’t rise as dramatically during a gold rush, you’re likely not to lose your shirt with this investment. No matter what, both gold and silver stocks are known for volatility; thus, having a safety net makes sense.
Thanks to its January 2019 acquisition of Goldcorp, NEM stock offers fundamental robustness. With stronger margins and higher growth trajectories, NEM is well positioned to advantage the fear trade. That might very well come if this trade war negotiation turns out to be another head-fake.
Sibanye Gold (SBGL)
One of the biggest gold stocks to buy, Sibanye Gold (NYSE:SBGL), is notable today for moving against the grain. While the spot price for the underlying yellow metal has steadily declined since the beginning of September, SBGL stock has veritably skyrocketed. Is there something in the water in South Africa where Sibanye is headquartered?
We all know that Africa has very valuable natural and precious resources. Among those resources isn’t just gold, but also platinum and palladium. The latter metal has enjoyed a robust performance in the markets. Currently, palladium is worth more than gold, even with a sharp drop in price. Since Sibanye is the second-largest producer of the precious metal, SBGL stock has enjoyed outsized gains.
Not only that, management has been very active in the mergers and acquisitions scene. Consolidating more companies under its umbrella, SBGL stock has a very robust growth pathway over the long run.
Among the best performing gold stocks to buy, what most impresses me about Franco-Nevada (NYSE:FNV) is its resiliency. Several mining companies, especially the ultra-speculative silver stocks, fell sharply following the 2011 precious metals rally and subsequent collapse. While FNV stock certainly felt the heat, it didn’t fold like many of its peers.
A major reason why this is involves fiscal stability. Prior to the 2011 run up, many sector players got gold fever, believing prices would rise indefinitely. Unfortunately, these organizations were not prepared for the coming bearish phase, taking risks they normally wouldn’t have.
However, Franco-Nevada has kept its financials relatively clean. For instance, its balance sheet has very manageable debt levels compared to its cash holdings. In other words, management hasn’t stretched itself, which is a positive attribute in this environment. You just never know what’s going to happen next. Thus, FNV stock gives you a balanced approach between upside potential and stability.
Sandstorm Gold (SAND)
A lesser-known entity among gold stocks to buy, Sandstorm Gold (NYSEAMERICAN:SAND) could eventually turn out to be a front runner. Although the low SAND stock price makes it riskier compared to its larger brethren, what investors will appreciate is the underlying company’s business model.
Featuring a portfolio of royalty assets, Sandstorm doesn’t actually operate mining projects. Instead, it invests in companies that have a need for capital. In return, Sandstorm receives a share of the spoils. For those who are concerned about the volatility in metal prices, SAND stock may offer an ideal platform. Thanks to the royalty model, it’s much easier to predict cash flows for the company.
That said, don’t jump aboard SAND stock assuming that it has no risks. Primarily, Sandstorm has a substantial stake in the Hod Maden mine in Turkey. If this pans out, SAND is due for a massive upswing. But it’s also important to consider that Turkey isn’t exactly a geopolitically stable area.
First Majestic Silver (AG)
While gold stocks get most of the coverage in the precious metals sector, investors shouldn’t ignore silver stocks. Generally speaking, the cheaper of the pair share a strong correlation with each other: As one moves higher, so too does the other. With that in mind, those interested in mining companies should consider First Majestic Silver (NYSE:AG) and AG stock.
One of the attributes about First Majestic that I found appealing is its geographic positioning. The company has 100% ownership of six mines in Mexico. Aside from being a neighboring country, Mexico has free trade agreements with multiple developed economies. More importantly for potential buyers of AG stock, Mexico features relative political and financial stability.
And because the U.S. and Mexico are such close partners, the latter is truly disincentivized from acting irrationally.
That said, AG stock isn’t without risks. Typical of smaller silver stocks, First Majestic historically has suffered middling profitability margins, though these metrics have recently improved.
Wheaton Precious Metals (WPM)
Like gold stocks, silver mining investments are wild, even more so than those companies producing the yellow metal. Because silver has both industrial and monetary components, as well as a thinner market, the supply-demand picture is unpredictable. However, Wheaton Precious Metals (NYSE:WPM) takes much of the guesswork out with its streaming business model.
Like Sandstorm Gold, Wheaton Precious Metals doesn’t own mining projects. Instead, it provides necessary capital for miners. Therefore, an investment in WPM stock provides broader coverage to the silver mining industry than would be possible through a traditional business model. And because of the pre-negotiated contracts, it’s much easier to predict Wheaton’s financial trajectory.
Interestingly, WPM stock has held up reasonably well following the precious metals’ fallout earlier this decade. Now, it appears the tide is shifting favorably for both gold and silver stocks to buy. Don’t be surprised if WPM enjoys outsized performance.
Pan American Silver (PAAS)
Relative to gold stocks, the silver miners have a reputation for being high-risk, high-reward investments. However, those that value hard results with the possibility of outstanding gains should consider Pan American Silver (NASDAQ:PAAS). While silver prices have slipped badly in November, PAAS stock is up over 4% since the beginning of the month.
Why? The Street took a very positive view on the company’s third-quarter earnings results. Revenue came in at over $352 million, representing a year-over-year lift of nearly 88%. Moreover, Pan American delivered net income of $37.7 million, which translates to earnings per share of 18 cents. In the year-ago quarter, EPS was a loss of 6 cents.
Following the results, PAAS stock benefitted from a robust session the next day.
I wouldn’t be surprised if we saw further gains down the road. PAAS stock was a survivor of the dark days of silver and gold stocks early this decade. With a much more favorable pathway ahead, the underlying company has the potential to pull off big surprises.
As of this writing, Josh Enomoto is long all the precious metals mentioned above.
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