Including the top metal stocks in your portfolio can add volatility. But it can diversify your holdings, as well as boost your long-term gains.
Some of the top metal stocks come from companies that have been producing for years. For the mining component of the resources segment of your portfolio, the focus should be on firms with positive cash flow and high-quality reserves. Resource stocks overall (and this includes metals, of course) should make up only a reasonable portion of a Successful Investor portfolio.
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Discover 3 ways the top metal stocks can prepare your portfolio for the future
#1 best attribute of the top metal stocks: Positive cash flow
We like to see strong fundamentals in the mining stocks we recommend. We look for low debt, because debt can be a problem for any mining company. When we recommend mining stocks, we want to see positive cash flow, preferably even when resource prices are low.
Even better, we like to see mining companies that have cash flow from an existing mine that is sufficient for, or at least contributes to, the cost of developing a second mine.
#2 best attribute of the top metal stocks: Existing mines
Mining stocks can generally be broken up into two categories, majors and juniors. Majors are mining companies that have been in the mining business for many years and more often than not they operate on a global scale.
Majors have proven methods for exploration and mining, and have consistent output year over year from their existing mines.
A feasibility study is usually required by financing institutions in order to loan a mining company money to build a mine. It involves conducting engineering studies, economic analyses based on realistic metals price projections, and processing tests to demonstrate that the resource can be recovered economically. When a feasibility study is produced, resources are upgraded to proven and probable reserves.
#3 best attribute of the top metal stocks: Industrial uses
Stocks of firms that produce base metals, like copper, generally have higher dividend yields than gold stocks. As well, they’re usually much cheaper than gold stocks in relation to their earnings and cash flow. That means they potentially have less room to fall if markets fall. That’s just another way of saying they can be considered somewhat less risky than gold.
Traditionally, investors have bought copper stocks as a way to profit from general economic growth. Copper has a wide range of industrial uses (unlike gold and silver, which are thought of more as hedges against inflation). Copper is heavily used in the power-transmission and construction industries, in cables, wires and plumbing.
Here’s how to lower your risk on the mining investments you make
We continue to recommend that you cut your risk in the volatile resource sector by investing mainly in stocks of profitable, well-established mining companies with high-quality reserves. And as mentioned, resource stocks (and this includes oil and gas, of course) should make up only a limited portion of your portfolio.
While we think you should maintain some exposure to resource stocks, you should still aim for balance among most if not all of our five main economic sectors: Resources & Commodities, Finance, Manufacturing & Industry, Utilities and the Consumer sector. You should always resist the temptation to load up on mining stocks, no matter how attractive they appear. If the market does go into a downturn, these stocks could suffer more than average.
Use our three-part Successful Investor approach to dictate all your stock picks, including the top metal stocks
Invest mainly in well-established, mostly dividend-paying companies
Spread your money out across most if not all of the five main economic sectors
Downplay or avoid stocks in the broker/media limelight
Investor bonus: Newmont Corp. (New York symbol NEM) is a winner in the precious metals market
Newmont Corp. gives you exposure to the world’s largest gold miner following Newmont’s April 2019 acquisition of Vancouver-based Goldcorp Inc. for $10 billion in cash and shares.
The company continues to expand its production following COVID-19 disruptions and restrictions in the early part of 2020.
As a result, it expects to produce 6.5 million ounces of gold in 2021, up 8.3% from 6.0 million ounces this year.
Newmont also expects its annual gold output will rise to between 6.2 million and 6.7 million ounces for both 2022 and 2023. Production should then improve to between 6.5 million and 7.0 million ounces in 2024 and 2025.
At the same time, the company continues to do a good job lowering its costs. In fact, it now expects its total sustaining costs will drop from $970 an ounce in 2021 to between $800 and $900 an ounce in 2025.
What spurs you to invest in industrial metals like copper over “precious metals” like gold or silver?
How much of your portfolio do you feel should be invested in metal stocks?
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