We’ve only clocked in a month of the new year and already, fear and uncertainty are the dominant emotions. On the last trading session of January 2020, the Dow Jones lost 603 points, making it the worst one-day drop in four months. Deep-seated concerns about the coronavirus outbreak negatively impacted sentiment. But on another front, this is positive news for gold and silver stocks.
As you know, gold bullion is the classic hedge against equity volatility and general fears about economic and social stability. While many fear-inducing events have occurred over the last several years, this time seems different. For one thing, sentiment has turned very positive for the yellow metal and gold stocks. Since the end of November, the spot price for the precious metal has increased nearly 8%.
Further, as Seema Shah, chief strategist at Principal Global Investors notes, the coronavirus is a different animal to the SARS outbreak of the early 2000s. Today, we are much more connected both in terms of transportation and how information (or disinformation) travels via social media. Even if the coronavirus is a relatively benign bug, just the spread of exaggerated rumors can roil traditional investment markets. Again, though, this would theoretically be a positive for gold and silver stocks.
Even without this global health epidemic, gold stocks have responded well to underlying, though currently dormant tensions. As an example, North Korea has threatened belligerence recently. Also, the situation in Iran could quickly escalate.
I’m not guaranteeing calamity. But these events have the capacity to make precious metals great again. In the interest of not fighting the tape, here are 10 gold and silver stocks to consider.
Despite my enthusiasm for gold and silver stocks at this juncture, I must bring up one caveat: this sector is incredibly volatile. Therefore, any portfolio that features precious metals should incorporate a broad list of names. And I’d classify Newmont (NYSE:NEM) and NEM stock as an anchor investment.
What I mean here is that NEM stock probably won’t make you rich relative to high-risk, high-reward gold stocks. At the same time, it’s the least likely to leave you seeing red. As the world’s largest gold producer, Newmont has a level of stability that you just don’t find in this segment.
According to Stockrover.com, NEM stock ranks highly for its solid valuation and strong growth momentum. As well, I’m liking the consistently strong free cash flow, especially following the 2014 downturn in the metals.
Barrick Gold (GOLD)
As one of the largest gold producers in the world, Barrick Gold (NYSE:GOLD), like Newmont, benefits from comparative stability. A key factor for the bull case of GOLD stock is the underlying company’s international operations. Featured in generally stable regions, Barrick mitigates some of the political risks associated with gold stocks.
Furthermore, the company has demonstrated a return to positive growth following the rough outing in the middle of last decade. Net income has also moved into the black after years of swimming in red ink. Plus, with management cutting down long-term debt, the balance sheet looks more attractive.
Although Barrick has some work to do, the lift in the commodity markets is arriving at just the right time. Not surprisingly, several analysts have given GOLD stock a positive outlook.
Royal Gold (RGLD)
When most folks consider gold and silver stocks, they’re likely thinking about precious metal producers. While such companies typically do well in a bull market, they’re also subject to pricing swings. In order to help mitigate that impact, investors may want exposure to streaming and royalty companies like Royal Gold (NASDAQ:RGLD).
With streaming, a company provides a mining project with an upfront deposit in exchange for metals produced at that mine for a predetermined price for an established timeframe. Royalties are similar in concept, which represent the right to a percentage of metal production output. As Royal Gold is not directly exposed to operations, RGLD stock is typically more stable than other gold stocks.
Therefore, RGLD stock is also in some ways a hedge within the precious metals sector. Since we don’t know how domestic and geopolitical events will unfold, it’s just smart to keep this in your portfolio.
Sibanye Gold (SBGL)
A personal favorite, Sibanye Gold (NYSE:SBGL) is easily one of the most compelling names among gold and silver stocks. As the name suggests, Sibanye is a top gold producer. Headquartered in resource-rich South Africa, this company will likely remain a relevant sector player for many years to come.
But one of the specific factors that make South Africa special is their production of platinum group metals. It’s one of the top producers of the rare precious metal palladium, second only to Russia. As a highly desired commodity – at time of writing, palladium is around $2,200 – Russia unsurprisingly considers it a strategic asset.
Fortunately, Russia is not the only palladium producer. But again, with skyrocketing demand and an exclusive list of producers, this dynamic supports SBGL stock.
Sandstorm Gold (SAND)
A speculative investment in part because of its extremely rich valuation, Sandstorm Gold (NYSEAMERICAN:SAND) is nevertheless worth a look if you can handle potential volatility.
First, Sandstorm operates as a royalty business: it provides an upfront payment for mining companies in exchange for a percentage of revenue or metal production. Theoretically, SAND stock should be able to weather some of the choppiness of the commodities market.
Second, Sandstorm has experienced generally strong growth since 2015. Based on its trailing 12-month revenue trend, the full year 2019 looks on track to post sustained robust growth. And with interest returning to the sector, SAND stock is at least an interesting name to consider.
Hecla Mining (HL)
The oldest among silver stocks listed on the New York Stock Exchange, Hecla Mining (NYSE:HL) has a rich history extending back nearly 130 years. But this pedigree may not have been enough to save HL stock from getting kicked out of the exchange. Last year, Hecla was threatening literal penny stock status.
Suddenly, though, the situation improved dramatically for HL stock. Since mid-August of last year, shares have more than doubled in market value. If I had to wager, I’d bet that Hecla will continue the run. Fundamentally, the company is getting back to strong growth. Also, sentiment is finally turning favorable to silver stocks, which approximately track the gold sector’s trajectory.
Wheaton Precious Metals (WPM)
As a precious metals-based investment, silver stocks are attractive to buyers on a budget. With their typically lower entry points, this segment offers more bang for the buck. Plus, they move on the same fundamentals as gold.
However, silver stocks are volatile. While they follow gold’s trajectory, they do so in a wild manner. To mitigate some of this variability, investors should consider Wheaton Precious Metals (NYSE:WPM) and WPM stock.
Like some of the other names I mentioned, WPM stock is levered toward the streaming business model. As the streaming contracts involve predetermined prices and timeframe, Wheaton offers a level of cost predictability that you don’t find with direct producers. Unsurprisingly, growth has picked up in recent quarters and I expect this trend to sustain as broader interest returns.
First Majestic Silver (AG)
Although one of the riskier silver stocks on the market, I nevertheless believe First Majestic Silver (NYSE:AG) has upside potential. Primarily, AG stock appeals ironically to risk-averse investors. That’s because First Majestic is levered to only one country, Mexico.
Sure, the current administration makes our relationship with our southern neighbor strained. Furthermore, Mexico is grappling with drug cartel violence. Still, it’s also a nearby and viable economic partner, which helps to control for geopolitical variables. In other words, Mexico’s longstanding issues are nothing new to us.
And similar to other silver stocks, First Majestic Silver has recently posted robust growth metrics. With broader fundamentals favoring the precious metals, AG stock is a name to keep on your watch list.
Pan American Silver (PAAS)
A familiar name among fans of silver stocks, Pan American Silver (NASDAQ:PAAS) had its initial public offering in the mid-1990s. Since then, PAAS stock has incurred massive valuations swings. As a result, analysts have a middling take on shares. Nevertheless, I think this is an opportunity for those who can handle the turbulence.
Somewhat like First Majestic, Pan American Silver – true to its namesake — focuses on the Americas. The difference is that the company has operations throughout Central and South America, and one in Canada. This geographic centralization is appealing since as neighbors, we’re more familiar with their politics. As well, there’s an incentive for participating countries to stay on the up and up.
Naturally, PAAS stock has seen a dramatic change of fortune over the last several months. Since the end of May 2019, shares have gained over 112%. I expect continued positivity based on supportive external fundamentals.
Silvercorp Metals (SVM)
If you’re an extreme speculator, some of these gold and silver stocks may not do it for you. In that case, you may want to take a look at Silvercorp Metals (NYSEAMERICAN:SVM). A consistently profitable silver producer, SVM stock didn’t really become terribly risky until just recently.
A Canadian-based organization, Silvercorp focuses its operations in China. Thus comes the risk. With coronavirus fears spreading like wildfire in the region, SVM stock has not looked pretty. For the month of January, shares lost slightly over 7% of market value.
But here’s the bullish thesis: like all virus outbreaks, this too shall pass. From this perspective, SVM stock is on a discount. However, not all viruses are the same. We have no idea when this crisis will end. It’s both a tough and compelling opportunity.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities. He is long the physical precious metals mentioned in this story.