Generalist Money Could Be the Next Catalyst for Gold Stocks
Gold miners have rarely looked this good on paper. They are posting some of the widest profit margins in the equity market and trading at some of the lowest valuations in decades, yet generalist investors are still sitting it out.
The contrast with the broader market is stark. The S&P 500 (INDEXSP:.INX) is trading near historic market tops, while miners generate strong cash flow, carry low debt and pay dividends, yet make up roughly 2 percent of global equity markets.
History suggests that gap won’t hold forever. Specialists dominate mining stocks in today’s cycle, but the sector’s biggest rallies have come when generalists, in the form of pension funds and retail investors, piled in alongside them. It happened toward the end of the boom in the late 1970s and early 1980s, and again in the early 2010s. In those cycles, mainstream attention turned to gold and precious metals first, then shifted to an investment surge in equities.
Whether that shift is coming, and what it means for investors, was the subject of a presentation by Jeff Clark of the Paydirt Prospector at the September Metals Investor Forum in Vancouver. Clark has tracked equities through multiple cycles and was focused on whether it was the right time for generalist investors to get off the sidelines.
Good reasons for investors to look at mining equities
Clark made the case for generalist interest rooted in a profitability and valuation gap that has developed between mining stocks and the broader market. Comparing margins, free cash flow and dividends, he showed mining companies outpacing S&P averages in each category.
He noted that free cash flow per share among miners has grown tenfold since 2020, while earnings yield sits at 12 percent, the highest of any sector. Meanwhile, mining holds the smallest share of global equity markets in 55 years.
This suggests the broader market is vulnerable, with 51 percent of S&P companies trading at 10 times sales, compared to the long-term average of just 1.8 times sales, he explained. In terms of market caps, he said the top 50 gold miners combined are smaller than NVIDIA’s (NASDAQ:NVDA) US$5 trillion valuation.
“That market is extremely vulnerable, and this kind of hints at when and why the general market will come into our sector,” he said. “It shows how small our market is and how vulnerable the general market is.”
Clark suggests that, with the mining sector remaining as undervalued as it is, it won’t take much for the market to gain momentum and stock prices to increase.
“This is the smallest level, the smallest percentage in 55 years, even pre-1980. So when they start crowding in, there could be a lot of buying, a lot of demand for stock,” he said.
Ahead of his presentation at the Metals Investor Forum, Clark stopped by the Investing News Network’s headquarters in Vancouver to discuss his current investment…
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