While modern investors tend to avoid precious metals, they offer wealth protection against inflationary forces. By this logic, gold should tumble under the Federal Reserve’s directive of raising the benchmark interest rate. However, rare commodities recently demonstrated liveliness in the market, suggesting the fear trade is alive and well. Under this scenario, investors may want to consider gold stocks to buy, particularly Barrick Gold (NYSE:GOLD) and Wheaton Precious Metals (NYSE:WPM).
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Under ordinary circumstances, hawkish central bank policies bode poorly for commodities and the underlying mining enterprises. In this case, the Fed’s efforts to raise interest rates subsequently lift borrowing costs, in turn tightening the money supply. With fewer dollars chasing after core goods, each commodity unit will command a smaller price point.
However, the post-pandemic new normal introduced much volatility in the global ecosystem. From a worldwide health crisis to economic devastation to skyrocketing inflation to now geopolitical flashpoints, it appears that human civilization has gone off its rocker. As a result, the fundamental demand for wealth preservation appears to have accelerated, irrespective of monetary policy.
Adding to the interest in gold stocks, many other risk-on asset classes – in particular, cryptocurrencies – failed spectacularly in 2022. For many investors, the message couldn’t be clear enough. Moving forward, the market may place a premium on safety. Fundamentally speaking, fewer safe assets exist than gold, which features a history dating back millennia.
Barrick Gold (GOLD)
Headquartered in Toronto, Ontario, Barrick Gold is one of the biggest gold companies in the world. At the end of last year, Barrick carried a market capitalization of slightly over $30 billion. Footprint-wise, the company features several mining operations throughout South America and Africa, as well as the U.S. and its home market of Canada.
Interestingly, while GOLD suffered a loss for 2022, it conspicuously outperformed the benchmark S&P 500 index. While the former gave up a bit over 7% of market value, the latter plunged nearly 20%. Further, Barrick appears to have a strong correlation with the underlying asset. Since hitting a bottom on Nov. 3, GOLD gained over 31%.
As well, bullishness in Barrick is justified based on the company’s earnings performances. From at least the fourth quarter of 2020 to the most recent Q3 of 2022, Barrick’s reported earnings per share beat their consensus expectations. Not surprisingly, then, TipRanks notes that sentiment among hedge funds pings as very positive.
Finally, the quantitative metrics point to a solid fiscal profile. Most prominently, Barrick’s operating margin stands at a lofty 33.66%, beating out nearly 88% of other gold stocks. In addition, the company enjoys a gross margin of 36.63%, better than over 70% of its rivals.
Is GOLD Stock a Buy?
Turning to Wall Street, GOLD stock has a Strong Buy consensus rating based on six Buys, two Holds, and zero Sells assigned in the past three months. The average GOLD price target is $19.67, implying 4.02% upside potential.
Wheaton Precious Metals (WPM)
Headquartered in Vancouver, British Columbia, Wheaton Precious Metals (NYSE:WPM) represents another Canadian player in the rare resource department. However, Wheaton distinguishes itself from metal miners by specializing in streaming operations. Streaming refers to a contractual agreement where upfront cash is exchanged for a purchasing agreement at a predetermined discounted price.
Fundamentally, investors may want to diversify their portfolios of gold stocks with streaming outfits because of pricing predictability. With the core financial terms laid out contractually, fewer opportunities for surprises exist. Therefore, WPM and its ilk benefit from pricing predictability. To be fair, though, a typical drawback to streaming firms is that their upside returns are limited.
Still, WPM managed to perform slightly better than Barrick above, losing 6.57% in 2022. In the back half of last year, WPM gained 11.6%, pointing to a promising future. Notably, Barrick owns the clear upper hand in terms of outperformance against earnings expectations. However, WPM also enjoys very positive sentiment among hedge funds.
Finally, as expected, Wheaton delivers a stronger financial profile than Barrick and many other gold stocks. Notably, it features incredible stability in the balance sheet, highlighted by a stratospherically robust Altman Z-Score (which represents a measure of bankruptcy risk). As well, Wheaton carries a return on equity of 12.6%, beating out 87% of the competition and reflecting superior capacity in converting equity financing into profits.
Is WPM Stock a Buy?
Turning to Wall Street, WPM stock has a Strong Buy consensus rating based on seven Buys, two Holds, and zero Sells. The average WPM price target is $43.62, implying 3.78% upside potential.
Gold Stocks Could be a Standout Hit in 2023
Just based on pure mathematical realities, higher interest rates should impose a negative framework for gold stocks. Instead, this segment enjoyed an outstanding performance recently despite the Fed not willing to give up its hawkish approach. Therefore, the fear trade may be relevant, forcing investors to pay close attention.
