Buy Gold Stocks to Hedge Against Inflation and Beat the Market

Increasing inflation expectations should drive investors towards gold in the near term, which should benefit gold stocks such as Goldcorp Inc. (TSX:G)(NYSE:GG).

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Inflation has started to show up in economic data, and it may rise faster than expected. One of the best ways to protect your portfolio against inflation is to own gold, which is viewed as an inflation hedge. Besides inflation, there are other reasons that could draw investors towards gold in 2018.

The gold price has rallied in 2018, rising from under US$1,250 per ounce in mid-December to trade over US$1,310 per once as of Friday. Most analysts are bullish regarding gold this year.

You can have some exposure to gold by buying gold stocks, which are more liquid than owning gold itself.

Goldcorp Inc. (TSX:G)(NYSE:GG) and Yamana Gold Inc. (TSX:YRI)(NYSE:AUY) are two gold stocks that are undervalued relative to their high growth prospects over the next few years.

I expect these stocks to beat the market this year or next year, as their prices should eventually catch up with the rising gold price. I present here their latest results and their growth prospects over the next few years.

Goldcorp Inc.

Goldcorp’s primary product is gold, and it is the world’s fourth-largest gold producer, so you get a large exposition to gold with this miner.

Goldcorp more than doubled its net income in the fourth quarter of 2017 from US$101 million to US$242 million, boosted by one-off items.

The increased profit was primarily due to higher earnings from Cerro Negro mine due to increased gold production, an increase in the average realized gold price to US$1,285 an ounce from US$1,178 a year ago, and increased zinc revenues at Peñasquito due to both higher production and zinc prices.

Operating cash flows in the fourth quarter of 2017 were up 114% from the last quarter of 2016, reaching US$511 million.

Gold production of 646,000 ounces was down from 761,000 ounces a year earlier but was somewhat offset by higher prices.

For 2017, Goldcorp’s net earnings were US$658 million, an increase of 300% compared to 2016.

The giant gold miner has a goal to reach US$250 million in annual efficiencies and has nearly US$200 million in savings already in place.

Goldcorp’s stock is undervalued. Its forward P/E of 22 is not very low, but if you look at the PEG expected over five years, it is only 0.8. That means the stock is very cheap relative to its high expected future growth, which is estimated to be 67% in 2019 and 37% per year on average for the next five years.

Yamana Gold Inc.

Yamana is a smaller gold producer than Goldcorp. What is interesting about this company is that it also produces silver and copper, bringing diversification. As copper is expected to rise this year, it should help this miner.

Yamana reported in the fourth quarter of 2017 a loss of US$191 million, or US$0.20 per share, while analysts expected a profit of US$0.03 per share. The main issue was that the company took a US$356 million non-cash impairment charge for the re-measurement of the Gualcamayo mine and related exploration properties in Argentina, which the company is in the process of selling.

Nevertheless, this loss was lower than the US$367.6 million loss, or US$0.31 per share, the miner had incurred in the last quarter of 2016. For 2017, Yamana had a loss of US$194.4 million compared to a loss of US$308 million in 2016.

The company listed an average realized gold price of US$1,286 an ounce in the fourth quarter, up from US$1,210 a year ago. The average realized price of copper also increased from US$2.48 per pound to US$3.02 per pound. Gold production is expected to rise over the next three years.

Yamana, like Goldcorp, is undervalued. Its forward P/E of 20 may not seem very low, but if you look at the PEG expected over five years, it is only 0.6. That means the stock is very cheap relative to its high expected future growth, which is estimated to be 55% in 2019 and 40% per year on average for the next five years.

Should you invest $1,000 in Bitcoin right now?

Before you buy stock in Bitcoin, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Bitcoin wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Stephanie Bedard-Chateauneuf has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Metals and Mining Stocks

Man holds Canadian dollars in differing amounts
Stocks for Beginners

Cash Is King? Think Again During Today’s Market Dip

Sure, cash is great, but during a market dip investors may want to consider using some of the cash to…

Read more »

todder holds a gold bar
Metals and Mining Stocks

2 Canadian Dividend Stocks Worth Their Weight in Gold

Agnico Eagle Mines (TSX:AEM) and Barrick Gold (TSX:ABX) are shining stocks on the TSX this quarter!

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

First Quantum Minerals: Buy, Sell, or Hold in 2025?

First Quantum stock is a strong stock, but what about the future of this TSX stock?

Read more »

man touches brain to show a good idea
Metals and Mining Stocks

Tariff Troubles: How Canadian Investors Can Weather the Storm

This market is going bananas over tariffs, but there's one area of the market that can still protect your investments.

Read more »

top TSX stocks to buy
Metals and Mining Stocks

The Best Stocks to Invest $1,000 in Right Now

Investing in undervalued TSX stocks such as New Gold should you deliver outsized gains in 2025 and beyond.

Read more »

Man data analyze
Metals and Mining Stocks

Trump Tariffs Send Copper Prices Skyward: Are Canadian Copper Stocks a Buy Now?

Here’s why Trump’s new auto tariffs are sending copper prices soaring and putting Canadian copper stocks in the spotlight.

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Better Materials Stock: Nutrien vs Mattr?

Nutrien stock still looks like a strong, long-term buy, but so does Mattr. So, which comes out on top?

Read more »

nugget gold
Stocks for Beginners

Precious Metals Are a Hot Commodity Under Trump Tariffs: 2 TSX Stocks to Consider

Gold is looking like a shiny opportunity for investors right now, so should you dive in?

Read more »