It’s Time to Consider This Old-School Inflation Hedge

Inflation continues to eat away at consumer’s purchasing power. And while it’s blindsided some investors, it’s also been tough to hedge right now. That’s because conventional hedges haven’t worked too well yet, as investors have gone through other alternatives first.

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  • However, gold is starting to look undervalued relative to other commodities. And it has a long history of holding up well compared to inflation, both expected and unexpected, over time.

    As gold prices look undervalued, so do prices for gold mining companies. These firms have been performing well operationally, but are down as gold prices have been trending lower.

    One leader in the space is Newmont Mining (NEM). The gold major is down 23 percent in the last year, underperforming the overall stock market. But that makes it look worse than gold’s performance, making it cheap for the metal’s next rebound.

    Action to take: Shares trade for under 14 times forward earnings, as reasonable price for the commodity. And the stock’s EV/EBITA, a more conservative read on its valuation, is closer to 12, down from 255 last year. The stock could be a surprising winner here, and shares yield 5.2 percent for today’s buyers.

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  • For traders, the January 2023 $50 calls, last going for about $1.87, could deliver mid-double-digit returns from here. Traders should look to sell on a jump higher in shares.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.