Despite record inflation levels, commodity stocks have not outperformed the broader stock market in recent weeks. Commodities accounted for the last remaining segment that stood its ground as the broader stock market declined significantly this year. However, several of them have declined to levels that have made them too cheap for investors to ignore.
Metals and mining stocks appear to be attractive plays for stock market investors interested in commodity stocks. Gold prices have declined and stabilized around the US$1,700-per-ounce mark after hovering between US$1,800 and US$1,850 for the better part of the last year.
Many investors fear that a recession is imminent. Analysts from Royal Bank of Canada expect a recession to occur early next year, and it is important for stock market investors to understand their options when such a market environment arrives.
Volatile commodity prices
The S&P/TSX Composite Index is down by 12.40% from its 52-week high at writing. The Canadian benchmark index has shown signs of improvement in recent weeks, reflected by a 6.15% recovery from its July 14th levels. Gold prices typically have a negative correlation to the broader economy. When stock markets decline, gold prices tend to rise.
However, the situation has been different with the recent downturn. Record inflationary conditions led the Bank of Canada (BoC) and the U.S. Federal Reserve to introduce a series of interest rate hikes. Higher interest rates are designed to slow down economic activity by making borrowing harder for individuals and companies. Slower economic activity can gradually bring down the cost of living.
Higher interest rates have made low-risk assets like bonds and Guaranteed Income Certificates (GICs) more attractive for investors. Where more money could have flowed toward gold and gold stocks, investors are likelier to invest in lower-risk assets for relatively safer returns. Gold prices, as a result, have not managed to climb as they usually do during market downturns.
The result has been a decline in gold prices, making gold-related, publicly traded companies trade at discounted levels. Agnico Eagle Mines (TSX:AEM)(NYSE:AEM) stock is one such gold stock trading for a massive discount.
AEM stock trades for $53.89 per share at writing. It is down by 36.34% from its 52-week high right now. The decline in its valuation has inflated its payouts to a juicy 3.80% dividend yield, making it an attractive gold-based play to consider for its shareholder dividends.
Between its high-yielding dividends and discounted share prices, Agnico Eagle Mines stock could be an attractive play if you are betting on a recovery in gold prices.
Foolish takeaway
Investors tend to flock to gold and other safe-haven assets during recessions to protect their capital. If a recession does hit the markets, gold prices could turn around. Agnico Eagle Mines stock is a $24.63 billion market capitalization gold-producing company with operations in Canada, Finland, and Mexico. The company also has exploration and development activities underway in the U.S.
After the successful merger with Kirkland Lake Gold, AEM stock enjoys better operational efficiencies and stronger operating cash flows. The stock could be an excellent investment to consider as a safe-haven asset if a recession strikes in the coming months.
