Gold mining stocks present a conundrum for prospective investors. On one hand, the ambiguities in the market and the broader economy may spark the fear trade. If so, the underlying yellow metal should see increased demand. But on the other hand, the Federal Reserve might start raising interest rates again. Higher borrowing costs don’t exactly help commodity pricing.
Fundamentally, while the June jobs report saw employment numbers come in below economists’ expectations, the pace of wage growth remained steady from May to last month. Also, the unemployment rate dipped to 3.6% from 3.7%. Put another way, a more resilient labor force might convince the Fed to hike rates. That might negatively affect precious-metals-related recession-proof stocks.
Nevertheless, investing in gold mining might make sense because as we saw in the first quarter of 2022, fear of instability – rather than the anticipation of rate hikes – can drive gold prices higher. Given that there’s plenty of uncertainty to go around in the post-pandemic environment, precious metals make sense. If you’re worried about a downturn, these are the gold stocks during recession to consider.
Wheaton Precious Metals (WPM)
As a metals streaming enterprise, Wheaton Precious Metals (NYSE:WPM) ranks among the top gold mining stocks to consider because of business predictability. Unlike a direct player in the mining game, streaming companies offer miners cash up front. In exchange, the streaming entity receives a predefined of the underlying metal production. Such an arrangement helps mitigate the volatility often associated with investing in gold mining.
Financially, Wheaton benefits from consistent profitability. For example, its trailing-year net margin stands at 64.23%, above 95.1% of the metals and mining industry. Notably, Wheaton also prints a three-year EBITDA growth rate of 34.2%, above 78.96% of sector rivals.
Also, it’s worth pointing out that Wheaton commands a solid balance sheet. For example, its equity-to-asset ratio impresses at 0.99 times, above 97.35% of its peers. Its Altman Z-Score clocks in at a staggering 119.02, indicating extremely low bankruptcy risk. Thus, WPM doubles as one of the recession-proof stocks to buy.
Agnico Eagle Mines (AEM)
A senior Canadian gold mining company, Agnico Eagle Mines (NYSE:AEM) has produced precious metals since 1957. According to its public profile, Agnico’s operating mines are located in Canada, Finland and Mexico, with exploration and development activities in each of these countries as well as in the U.S., Sweden and Colombia. On paper, AEM entices with its long-established history, making it one of the top gold mining stocks to consider.
To be fair, AEM encountered some choppiness this year, which isn’t all that surprising given the market’s noise. Since the start of the year, shares stumbled almost 10%. However, they’re also up nearly 8% in the trailing year. Financially, Agnico makes an enticing (albeit somewhat speculative) case for gold stocks during recession because of its profit margins. Right now, the company’s operating and net margins stand at 27.33% and 40.78%, respectively. Both stats rank at least in the top 86% of the underlying industry.
Also, the market prices AEM at a trailing multiple of 9.33, below the sector median of 13.09 times. While it might not be a comprehensively safe investment in recession, it’s on a discount.
Rio Tinto (RIO)
If you want to dial up your risk-reward profile in gold mining stocks without going too overboard, Rio Tinto (NYSE:RIO) is the name to watch. A stalwart in the resource extraction industry, Rio Tinto commands a market capitalization of just over $107 billion. Trading volume on average clocks in at 3.34 million. Still, it’s a risky wager for those investing in gold mining, with shares down almost 11% since the Jan. opener.
Again, in fairness, if you look at the past 365 days, the tally goes to almost 10% up. With Rio Tinto’s massive footprint, the company commands significant relevancies and not just in gold. On that basis alone, RIO could be one of the recession-proof stocks to consider. It’s also on discount, with shares trading at a forward multiple of 8.86, below the sector median of 11.78 times.
Also, Rio Tinto features a net margin of 22.31%, above 86% of the field. And here’s where things get interesting. This profitability helps fuel Rio’s forward yield of 7.1%, well above the materials sector’s average yield of 2.82%. Frankly, that might be too much of a deal to pass up.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
