I love holding mining stocks in my portfolio. Why? Because they can provide beastly performance no matter what the economic environment is like. Mining stocks operate in an industry with high barriers to entry and illustrious profit margins. Thus, you’re likely to receive solid capital gains and dividends throughout the economic cycle.
I understand that many investors might be thinking that primary sector stocks have topped out. However, there’s a fair argument that many of them lag behind their intrinsic value, providing investors much scope for deep value plays.
So, without further delay, here are my top three mining stock picks.
Barrick Gold (GOLD)
Barrick Gold (NYSE:GOLD) is a must-have in any mining portfolio. GOLD stock has prospered the past few years due to sound management of the company by new CEO, Mark Bristow. The Canadian company has 13 gold and copper mining operations, stretching from Nevada to sub-Saharan Africa. Additionally, Barrick is the world’s second largest gold mining company, which has led to regional market strongholds.
Furthermore, Barrick’s partnership with Newmont (NYSE:NEM) in its Nevada Gold Mines venture is seen as a gamechanger that could generate life-changing returns for both enterprises. Moreover, the company already possesses a solid market share, as its gross profit margin of 40% illustrates.
Lastly, GOLD is currently undervalued as its earnings growth isn’t priced accurately by the market. For example, GOLD’s price-to-earnings ratio of 16 is at a 5-year discount worth 41%.
Sibanye Stillwater (SBSW)
Sibanye Stillwater (NYSE:SBSW) stock is a “buy the dip” opportunity after its 40% year-over-year drawdown. The company is one of the leading providers of platinum group metals (PGM) with a key focus on supplying the electric vehicle (EV) space. Furthermore, Sibanye owns strategic positions in gold mines with its Kloof and Beatrix properties in South Africa.
Sibanye’s profitability metrics embody its operational success. Firstly, its gross profit margin of 37% implies that it has achieved economies of scale, meaning that it holds much pricing power. Moreover, Sibanye produces attractive returns to its investors with a return on invested capital ratio of 27%, which also conveys its extensive market position.
A final matter to mention is Sibanye’s total return potential. The stock is deeply undervalued with a forward price-to-earnings ratio of 4.1 and a forward dividend yield of 9.9%, providing investors with capital gains and income-based return prospects.
Arch Resources (ARCH)
Contrary to popular belief, coal usage won’t disappear anytime soon. Sure, renewable energy is the future. However, renewable infrastructure needs to be developed by utilizing fossil fuels, and with the ex-Russia trade world, there’s a need for coal to stopgap some of the renewable metal and oil shortages.
Let me provide some quantitative evidence; it’s forecasted that coal consumption will settle at a 10% year-over-year increase in December. In addition, coal prices have skyrocketed by 79% in the past year, leaving the industry’s producers with humungous profit margins.
Arch Resources (NYSE:ARCH) is one of the largest coal mining companies in the United States. The firm generates more than $2.5 billion in annual revenue from its cooking and thermal coal, which is provided by its seven actively managed and owned mines. ARCH stock provides solid returns to its investors with a current return on equity of 102%. More importantly, the stock’s undervalued with a price-to-earnings ratio of 4.6, which is 56% below its sector median.
–Steve Booyens
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Source: Investor Place