In this article, we discuss the 10 precious metals stocks to buy amid market volatility.
Over the past few months, the prices of precious metals like gold had been on an upward trajectory as inflation fears crowded the stock market and increased interest in gold as a hedge. However, they started declining as speculation around the rise in interest rates gained pace. Outflows from gold-related ETFs also helped push gold prices lower. Central bank purchases remained slow as well as the rise of a new COVID-19 variant caused further uncertainty at the market. Supply chain issues hit the supply of other precious metals like silver and palladium.
Gold had ended 2021 at a price of around $1,820 per ounce, a gain of almost 4.4% in the fourth quarter of 2021. This gain was largely due to a surge in demand for gold in countries like India where jewelry posts strong numbers towards the end of the year. However, overall, gold prices dropped by more than 6% through the year. In 2022, the overall environment for precious metals is likely to remain challenging as the Fed tightens monetary policy and inflation touches peak value in the coming months.
This macro-economic environment has created some opportunities for shrewd investors. Growth-heavy portfolios that are overexposed to stocks during this volatile period can look towards gold as a solid hedge against inflation and reduce some of the risk associated with their investments. Precious metals also offer better protection against inflation compared to Bitcoin, evidenced by the increased volatility in the prices of digital coins over the past few weeks as the market reacts to a broad correction in value of growth stocks.
For those who do not want direct exposure to gold, there are several precious metal stocks that can offer a viable alternative and also pay handsome dividends. In a high interest rates environment, these stocks can be akin to gold in some cases. Some of the top precious metals stocks to buy now include Freeport-McMoRan Inc. (NYSE:FCX), Nucor Corporation (NYSE:NUE), and Wheaton Precious Metals Corp. (NYSE:WPM), among others discussed in detail below.
Our Methodology
The companies that operate in the precious sector and are best positioned to offer investors some solidity amid rising market volatility were selected for the list. The business fundamentals and analyst ratings for these firms are also discussed to provide readers with some additional context for their investment choices.
Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each firm.
Precious Metals Stocks to Buy Amid Market Volatility
10. Perpetua Resources Corp. (NASDAQ:PPTA)
Number of Hedge Fund Holders: 8
Perpetua Resources Corp. (NASDAQ:PPTA) operates as a mineral exploration firm. The company has been in the spotlight as one of the stocks that billionaire John Paulson is most bullish on. Perpetua Resources Corp. (NASDAQ:PPTA) is working on one of the most compelling gold projects in the market and has no debt. At the end of September 2021, the firm had nearly $56 million in cash, equating to a cash runway of around 23 months.
Perpetua Resources Corp. (NASDAQ:PPTA) is an early-stage firm and is focused mostly on gold, although it does plan to explore for other precious metals as well. Investment banks like B Riley and HC Wainwright were constructive on the stock towards the end of last year.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Paulson & Co is a leading shareholder in Perpetua Resources Corp. (NASDAQ:PPTA) with 24 million shares worth more than $123 million.
At the end of the third quarter of 2021, 8 hedge funds in the database of Insider Monkey held stakes worth $152 million in Perpetua Resources Corp. (NASDAQ:PPTA), up from 3 in the previous quarter worth $184 million.
Just like Freeport-McMoRan Inc. (NYSE:FCX), Nucor Corporation (NYSE:NUE), and Wheaton Precious Metals Corp. (NYSE:WPM), Perpetua Resources Corp. (NASDAQ:PPTA) is one of the stocks on the radar of investors amid increased market volatility.
9. POSCO (NYSE:PKX)
Number of Hedge Fund Holders: 11
POSCO (NYSE:PKX) is a South Korean firm that markets steel products. It has gained prominence in the finance world as one of the top holdings in the Charlie Munger portfolio. Munger is one of the most famous value investors in the world and a close friend to Wall Street titan Warren Buffett. Apart from interests in the steel business, POSCO (NYSE:PKX) also constructs industrial plants and commercial buildings.
In early December 2021, POSCO (NYSE:PKX) announced that it was teaming up with automaker General Motors for securing access to materials used in electric vehicle batteries. POSCO (NYSE:PKX) already has an existing agreement for supply of cathodes to the latter.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Pzena Investment Management is a leading shareholder in POSCO (NYSE:PKX) with 957,976 shares worth more than $66 million.
At the end of the third quarter of 2021, 11 hedge funds in the database of Insider Monkey held stakes worth $140 million in POSCO (NYSE:PKX), compared to 12 in the previous quarter worth $161 million.
8. Commercial Metals Company (NYSE:CMC)
Number of Hedge Fund Holders: 19
Commercial Metals Company (NYSE:CMC) is a Texas-based firm that markets steel and metal products. On January 11, BMO Capital analyst David Gagliano raised the price target on Commercial Metals Company (NYSE:CMC) stock to $40 from $34 and kept a Market Perform rating, highlighting the “better-than-expected” margins and resilient volumes of the firm in the quarterly earnings and noting that the stock was a “compelling investment” for exposure to the construction market.
In early January, Commercial Metals Company (NYSE:CMC) had announced that it would be constructing a “state-of-the-art” micro mill as part of a long-term growth plan to serve the markets in the Northeast, Mid-Atlantic, and Mid-Western United States.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm DE Shaw is a leading shareholder in Commercial Metals Company (NYSE:CMC) with 1 million shares worth more than $33 million.
At the end of the third quarter of 2021, 19 hedge funds in the database of Insider Monkey held stakes worth $181 million in Commercial Metals Company (NYSE:CMC), compared to 22 in the previous quarter worth $121 million.
7. Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 20
Rio Tinto Group (NYSE:RIO) operates as a diversified metals and mining firm. It is based in London. On January 24, the company had announced that it reached an agreement with the Mongolian government that would allow for the resumption of work on the Oyu Tolgoi copper mine. Rio Tinto Group (NYSE:RIO) plans to start underground operations at the site and envisions producing 500,000 metric tons of copper per year through the mine.
Rio Tinto Group (NYSE:RIO) stock has also jumped as China eases emissions cutbacks in the steel industry, leading to a jump in iron ore prices that topped $150 per metric ton, the highest seen in five months. The Chinese government has set 2030 as the new date for peak emissions in the sector, against an earlier target set for 2025.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Rio Tinto Group (NYSE:RIO) with 13.3 million shares worth more than $892 million.
At the end of the third quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in Rio Tinto Group (NYSE:RIO), compared to 21 in the previous quarter worth $1.4 billion.
6. MP Materials Corp. (NYSE:MP)
Number of Hedge Fund Holders: 20
MP Materials Corp. (NYSE:MP) is a Las Vegas-based firm with interests in rare earth mining and processing. Rare earth metals are used in the manufacture of some of the most popular consumer electronics and electric cars. In November, Bank of America analyst Lawson Winder had initiated coverage of MP Materials Corp. (NYSE:MP) stock with a Buy rating and a price target of $52, noting that the firm was a “critical” raw materials supplier to the EV industry. The analyst singled out the firm as a “unique, high quality” rare earths producer.
MP Materials Corp. (NYSE:MP) also stands to benefit as the US Senate mulls limiting American companies from sourcing their rare earth needs from Chinese firms. If a law is passed in this regard, MP Materials Corp. (NYSE:MP) would witness more growth in business.
At the end of the third quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $2.1 billion in MP Materials Corp. (NYSE:MP), the same as in the preceding quarter worth $2.5 billion.
In addition to Freeport-McMoRan Inc. (NYSE:FCX), Nucor Corporation (NYSE:NUE), and Wheaton Precious Metals Corp. (NYSE:WPM), MP Materials Corp. (NYSE:MP) is one of the stocks that hedge funds are keeping their eye on amid market volatility.
5. Encore Wire Corporation (NASDAQ:WIRE)
Number of Hedge Fund Holders: 21
Encore Wire Corporation (NASDAQ:WIRE) is a Texas-based firm that makes and sells electrical components and equipment. As market volatility increases, Encore Wire Corporation (NASDAQ:WIRE) offers investors the comfort of reliable dividend payouts. The company has paid a dividend to shareholders for fourteen consecutive years. In early November, it declared a quarterly dividend of $0.02 per share, in line with previous. The forward yield was 0.06%.
Encore Wire Corporation (NASDAQ:WIRE) has also been attracting positive interest from hedge funds. At the end of the third quarter of 2021, 21 hedge funds in the database of Insider Monkey held stakes worth $116 million in Encore Wire Corporation (NASDAQ:WIRE), up from 20 in the previous quarter worth $77 million.
4. Steel Dynamics, Inc. (NASDAQ:STLD)
Number of Hedge Fund Holders: 23
Steel Dynamics, Inc. (NASDAQ:STLD) operates as a steel producer. The stock has returned more than 56% to investors in the past year as the firm shatters earnings records and steel prices hit new prices. One of the other major advantages of owning the stock is that the firm also operates as a metal recycler, making it a rare sustainability play in an industry that is renowned for carbon emissions.
This is why elite hedge funds are bullish on Steel Dynamics, Inc. (NASDAQ:STLD) as a new fiscal year begins. Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Steel Dynamics, Inc. (NASDAQ:STLD) with 1.6 million shares worth more than $96 million.
3. Wheaton Precious Metals Corp. (NYSE:WPM)
Number of Hedge Fund Holders: 27
Wheaton Precious Metals Corp. (NYSE:WPM) is a Canadian mining company with prime interests in gold deposits. On February 8, Wheaton Precious Metals Corp. (NYSE:WPM) announced that it had entered into an agreement with Sabina Gold & Silver to purchase a part of the Goose Project in Nunavut from the latter. Wheaton plans to pay Sabina $125 million and will receive 4.15% of payable gold production from the mine.
Elite investors back Wheaton Precious Metals Corp. (NYSE:WPM) as it embarks on a growth plan. At the end of the third quarter of 2021, 27 hedge funds in the database of Insider Monkey held stakes worth $347 million in Wheaton Precious Metals Corp. (NYSE:WPM), up from 26 in the previous quarter worth $471 million.
In its Q2 2020 investor letter, First Eagle Investment Management, an asset management firm, highlighted a few stocks and Wheaton Precious Metals Corp. (NYSE:WPM) was one of them. Here is what the fund said:
“The strength in the price of gold was generally supportive of gold-related equities whose performance historically has been leveraged to the gold price. One such example is Wheaton Precious Metals, a Canadian streaming company that maintains, in our view, a high-quality, low-cost portfolio of precious metal purchase agreements that is well diversified across mining partners, geographies and metal types. Despite pandemic-related suspensions of six of its mining assets, Wheaton posted a 50% year-over-year increase in operating cash flow for the first quarter, which allowed the company to reduce its net debt while raising its quarterly dividend payment.”
2. Nucor Corporation (NYSE:NUE)
Number of Hedge Fund Holders: 25
Nucor Corporation (NYSE:NUE) makes and sells steel products. It is one of the largest steel firms in the world and the stock has gained over 114% in the past year as investors pile into the stock in hopes of shielding themselves from the volatility associated with growth equities in a high interest rates environment. Nucor Corporation (NYSE:NUE) has paid a growing dividend to shareholders for close to five straight decades.
Nucor Corporation (NYSE:NUE) is one of the favorite hedge funds stocks in the precious metals world. At the end of the third quarter of 2021, 25 hedge funds in the database of Insider Monkey held stakes worth $199 million in Nucor Corporation (NYSE:NUE), compared to 32 in the preceding quarter worth $196 million.
In its Q1 2021 investor letter, Madison Funds, an asset management firm, highlighted a few stocks and Nucor Corporation (NYSE:NUE) was one of them. Here is what the fund said:
“This quarter we are highlighting Nucor (NUE) as a relative yield example within the Materials sector. NUE is a leading manufacturer of steel and steel products. It is the largest steelmaker in the U.S. based on production volume with a vertically integrated business model. The company has a low fixed-cost position due to its use of electric arc furnaces, which are cleaner, less labor and energy-intensive than blast furnaces, and this results in low total costs per unit of steel produced. Our view is that a low cost position is an important attribute in a commodity business. NUE’s historical financial record supports this view as it has been profitable every year except for one over the past fifty years, unlike many steel producing peers. In addition, the company has a diverse product and mill portfolio that takes market share over time. We believe its scale, low fixed-cost position, consistent record of profitability and diverse mill portfolio result in a sustainable competitive advantage versus peers.
Our thesis on NUE is that it should benefit from higher steel prices as the U.S. economy recovers from the downturn caused by the Covid-19 pandemic. The company may also be a beneficiary of on-shoring, where manufacturing returns to the United States. These two dynamics should drive growth this year, and if the United States Congress passes new infrastructure legislation, that will provide another avenue for growth longer-term.
Importantly, NUE has a strong balance sheet and flexible capital spending model that can quickly adjust to changing economic conditions. If economic growth slows, NUE can quickly reduce its cost structure, something it has done successfully in prior cyclical downturns. The company has low financial leverage as its net debt/adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was only 0.9x at the end of last year, and it consistently generates positive free cash flow. These favorable characteristics differentiate NUE from other steel producers and help the company gain market share through disciplined capital allocation.
The fund purchased NUE at $56 in January, 2021, after it reached a low valuation with an attractive dividend yield and relative dividend yield versus the S&P 500. At the time or purchase, the stock yielded 3.3% and had a relative dividend yield of more than 2x the S&P 500, which was the high end of its historical range as shown in the bottom pane in the graph. The company is also a Dividend Aristocrat that has raised its dividend annually for 48 years. We expect continued dividend increases going forward.
Risks to the thesis include a prolonged economic downturn, lower steel prices and increasing steel import volumes that could hurt NUE financial performance. We believe these risks are manageable as economic growth is expected to be well above average this year. Specifically, Goldman Sachs is forecasting U.S. gross domestic product (GDP) growth of +8% in 2021, which would be the fastest pace of growth since 1950. Strong growth is likely to result in higher manufacturing activity, which we believe would be supportive of higher steel prices and limit risks to the thesis.”
1. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 66
Freeport-McMoRan Inc. (NYSE:FCX) is a mining firm with prime interests in copper. On December 13, Stifel analyst Alex Terentiew had initiated coverage of Freeport-McMoRan Inc. (NYSE:FCX) stock with a Buy rating and a price target of $48, highlighting the bullish outlook for copper futures amid rapid digitalization and increasing adoption of EVs across the world. The analyst noted that Freeport-McMoRan Inc. (NYSE:FCX) was “well-positioned” to generate higher free cash flows to ride this boom.
Hedge funds concur with analysts in this bullish view of Freeport-McMoRan Inc. (NYSE:FCX). At the end of the third quarter of 2021, 66 hedge funds in the database of Insider Monkey held stakes worth $3.2 billion in Freeport-McMoRan Inc. (NYSE:FCX), compared to 76 in the preceding quarter worth $3.8 billion.
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Disclosure. None. 10 Precious Metals Stocks to Buy Amid Market Volatility is originally published on Insider Monkey.
