As inflation surged in 2022 and interest rates around the world rapidly increased, it was no surprise to see gold stocks, even high-quality companies like B2Gold (TSX:BTO), consistently falling in value.
Although gold is a safe-haven asset that investors tend to turn to as uncertainty picks up, and although gold is also well-known as a hedge against inflation, in an environment with rapidly increasing interest rates, it’s not surprising to see gold prices and, consequently, gold stocks underperform.
This is because, while gold is seen as a safe-haven asset, it’s also one of the few assets that investors buy that provides you with no yield.
You can buy stocks that might not gain value for a year but will still pay you a dividend. Bonds are similar. Even if they are temporarily falling in price, they still offer investors a yield.
With gold, though, not only does the precious metal offer no yield, but in many cases, it can actually cost money to store.
So, it’s no surprise that in a rapidly rising-rate environment, when so many stocks are losing value and yields are consistently rising that gold prices and gold stocks would underperform.
In fact, B2Gold stock, one of the top gold stocks on the TSX, has lost just over 20% of its value in the last eight months, dating back to April 21, 2023.
However, with the stock now trading exceptionally cheap and with interest rates looking more and more like they’ve begun to peak, is B2Gold stock worth buying today?
Is B2Gold stock worth buying today?
When it comes to owning gold stocks in your portfolio, it’s certainly not an industry you want to have too much exposure to. At the same time, though, having a small portion of your portfolio allocated to gold stocks is essential for a high-quality and well-diversified, long-term portfolio.
The key with owning gold stocks, though, is that they can be very cyclical, so it’s paramount to try to gain exposure or add to your positions when the yellow metal is out of favour and trading cheaply.
That’s why right now looks like such an opportune time for investors to buy a high-quality gold stock like B2Gold. Not only is uncertainty still picking up as the economy faces significant challenges, but with the headwind of rising rates now appearing to dissipate, B2Gold stock could finally see some significant momentum and begin to rally.
How cheap is B2Gold?
Despite a strong performance by B2Gold over the last year, even with the sector facing its own headwinds, such as rapidly rising production costs, and despite some compelling acquisitions B2Gold has made, the stock has been rangebound for months now and today, at just $4.30 per share, still trades more than 35% below its average analyst target price of $6.98.
Furthermore, not only does the target price of $6.98 sit at a roughly 60% premium to where B2Gold trades today, but of the seven analysts that currently cover B2Gold stock, only one gives it a hold rating, with the other six giving it a buy rating.
Plus, in addition to B2Gold being one of the lowest-cost producers in Canada (a key competitive advantage) and on top of the stock consistently growing its production year in and year out, B2Gold also pays an impressive dividend for a gold stock, with a current yield of roughly 5.1%.
Moreover, in terms of its valuation, B2Gold stock trades unbelievably cheaply, at a forward enterprise value to earnings before interest, taxes, depreciation and amortization ratio of just 3.9 times.
That’s extremely low even for a gold producer and is well below both its five- and 10-year averages of 4.2 and 6.2 times, respectively.
Therefore, while B2Gold stock trades undervalued and offers such an impressive yield, it certainly looks like one of the best Canadian stocks now, especially if you’re looking to increase your exposure to the gold sector.
