2 Top TSX Gold Stocks to Add for Defensiveness Right Now

These two gold stocks are among my top picks in the mining space for a reason.

| More on:

Gold has traditionally been a key hedge against market uncertainty. With valuations where they are today, hedging at least a portion of one’s portfolio certainly seems like a prudent idea.

This safe haven is often looked to as a hedge due to its negative correlation to overall markets. However, gold has surprisingly underperformed my expectations of late. Accordingly, there are some concerns building that gold may not be the hedge it once was.

That said, I think there is a case to be made for gold and specifically gold miners. Here are two of my top picks in this regard.

Kirkland Lake Gold

Given its current valuation, I’d venture to say that Kirkland Lake Gold (TSX:KL)(NYSE:KL) is severely undervalued. The company’s price-to-earnings multiple is roughly half that of the broader market. Accordingly, at these levels, Kirkland Lake looks like a steal today.

From an operating efficiency standpoint, Kirkland Lake is one of the best gold miners in the world. This miner’s high-quality, high-margin mines make it an ideal long-term investment. Given where gold prices are today, I’d expect to see continued margin expansion. Given how Kirkland Lake’s existing margins are today, investors get a large margin of safety with this stock right now.

Kirkland Lake has essentially no debt on its balance sheet. Unlike other miners with less-than-perfect balance sheets, Kirkland Lake’s rather pristine financial position puts this miner in a league of its own. Kirkland Lake has the ability to increase its dividend dramatically (as it has done). Additionally, the company could go out and acquire gold reserves as it sees fit. I think both scenarios are likely, and I like the positioning of Kirkland Lake today.

Additionally, I think Kirkland Lake’s size is something investors ought to consider. Being a considerably small player in the market, Kirkland is positioned to deliver a greater upside than other big players on the TSX. It increased its revenue to above $3 billion last year — a hike of 78% year on year.

It also offers a dividend of 2%. Analysts place this firm’s 12-month price target at $56, which translates to upside potential of 35% at the time of writing. This sort of capital-appreciation potential is very exciting for long-term investors.

Franco-Nevada

Despite a relatively high valuation, I think Franco-Nevada (TSX:FNV)(NYSE:FNV) is one of the safer bets in the gold mining space.

Why?

Well, Franco-Nevada isn’t quite a gold miner. Rather, this company focuses on royalties and streaming in the gold mining space. Instead of doing the dirty work of exploring and operating mines, Franco-Nevada provides the upfront financing for these endeavours. In return, the company receives royalties on every ounce produced.

This business model has been extremely successful, particularly as the price of gold has risen. Production volumes are up, and Franco-Nevada is bringing in cash flow like nobody’s business. This has allowed Franco-Nevada to grow at a CAGR of around 18% over the past 10 years. That’s impressive, and something few gold miners are able to achieve.

Additionally, Franco-Nevada has been able to increase its dividend for 13 consecutive years. Given the amount of capital appreciation with this stock over this time, the company’s yield remains below 1% today. However, there is an intriguing dividend argument to be made with this stock as well.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »

todder holds a gold bar
Metals and Mining Stocks

The 1 Mining Stock Canadians Should Buy and Hold Forever

Newmont is a gold mining stock that trades at a cheap valuation, making it a top investment choice for those…

Read more »

Metals and Mining Stocks

Top Canadian Gold Stocks to Buy Now

Canadian gold mining stocks such as Barrick Gold and Kinross Gold are two top investments in October 2024.

Read more »

todder holds a gold bar
Stocks for Beginners

Is the Worst Over for SSR Mining Stock?

SRR Mining stock has been rising higher after recent earnings performance that made a bit of a comeback. So is…

Read more »