
Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
Gold and oil are always the hottest commodities among investors. After hitting an all-time high in the second quarter of this year, the price of gold has been trending towards another record high recently. And despite the global discussion of clean energy solutions, oil remains an attractive investment opportunity.
Unlike investing in the commodity itself, investments in oil and gold stocks often require more factors to be considered, including production levels, cost controls and operational efficiencies, to name a few.
Are gold and oil stocks still good investments for Canadian investors in the second half of 2024, and how should investors make a decision between the two?
Gold miners mine, produce and sell gold, and there are also gold flow-through and royalty companies which provide upfront investments to traditional miners and have rights to buy gold with discounted prices in the future. After all, investors should understand that when buying gold mining stocks they are investing in a business, not a commodity. Therefore, it is important to find companies with stable cash flows, low debt levels, increasing production and sustainable operating costs.
On the TSX, companies that meet all of these criteria include, first and foremost, Barrick Gold (TSX:ABX). With a current market capitalisation of C$32 billion, Barrick is one of the largest gold mining companies in the world. Over the past 15 months, geopolitical tensions and an uncertain economic outlook have pushed the price of gold up 15%, confirming its status as a safe-haven asset. However, Barrick Gold and its peers have lagged gold’s performance, making the stock an attractive option.
Barrick confirms that the company’s copper and gold production will grow in the event of higher prices, thereby expanding margins in a rising commodity market. Barrick Gold stock trades at a forward P/E of 16.2x, and given that its earnings are expected to grow by 30% per annum over the next two years, the stock is currently fairly undervalued. In addition to its low valuation, this gold stock offers a dividend yield of over 2%.
Oil stocks like Suncor Energy (TSX:SU) are more established than gold stocks like Barrick. Suncor Energy currently has a market capitalisation of C$67 billion and pays an annual dividend of C$2.18 per share to shareholders with a dividend yield of 4.2%. Suncor is a heavyweight energy company that sells oil and natural gas, and also owns and operates the Petro Canada gas stations.
In the first quarter of 2024, Suncor’s oil sands revenues were C$6.9 billion and operating cash flow increased 5.5 per cent to C$3.2 billion, giving it a margin of nearly 50 per cent. Higher cash flow margins have allowed the company to consistently raise its dividend every year. Over the past 20 years, this energy stock has grown its dividend by 15.6% per year, demonstrating the ability to leapfrog market cycles.
For investors, both gold and oil stocks are good options for the second half of the year. If it’s a choice of one or the other, oil stocks seem to be the better choice at this point because they are more established than gold mining companies and have higher dividend yields and more room for dividend growth.