Banyan Gold Corp. (TSXV: BYN, OTCQB: BYAGF)
The New Yukon Gold Rush
According to forecasts by JP Morgan, the likelihood of a recession in the United States rises to 35 per cent by the end of this year, and the probability of a recession in the first half of 2025 is 45 per cent. Therefore, there is no doubt that the Federal Reserve will start cutting interest rates by the end of this year. And from an investment perspective, now is a good time to buy some interest rate-sensitive stocks.
As the rate cuts are designed to boost consumer and investment spending, this will translate into bullish momentum for industrial commodities and energy. And with the dollar weakening as loose monetary policy is implemented, higher precious metal prices are to be expected. With that in mind, it makes sense for investors to consider buying the following resource stocks now.
As the world’s premier gold producer, shares of Barrick Gold (NYSE:GOLD) have been trading sideways over the past 12 months, trading at a forward P/E ratio of 13.8x with a dividend yield of 2.3%. With the probability that the price of gold will continue to trend higher, Barrick’s stock is expected to see a significant breakout rally at some point.
Barrick Gold is the largest gold producer in North America with an investment-grade credit rating, and management also intends to double copper production from current levels by 2029.
In the first quarter of 2024, Barrick reported operating cash flow of $760 million, and annual operating cash flow is projected to reach $4 billion to $5 billion. This will provide ample flexibility for dividend growth and increased capital investment. In addition, the company’s production growth will remain stable over the next few years thanks to its high-quality Tier 1 assets. In a rising gold price environment, Barrick will be a truly cash cow company.
Shares of oil and gas giant Chevron Corporation (NYSE:CVX) have remained in the doldrums over the past 12 months, affected by weak oil prices. However, given that interest rate cuts could push oil prices higher, now is a good time to buy this oil stock while the price is low. In addition to trading at an attractive valuation, the stock offers a healthy dividend yield of 4.55%.
Chevron has attractive break-even assets. In the second quarter of 2024, the company generated $6.3 billion in operating cash flow. If oil prices approach $100 per barrel, Chevron’s annual operating cash flow would be $35 billion to $40 billion.
Beside this, Chevron has an investment-grade balance sheet. As of the second quarter of 2024, the company’s net debt ratio was 10.7 per cent, which provides flexibility to invest aggressively. In the first half of 2024, the company reported $8.1 billion in capital investments, and is on track for annual investments of $14 to $16 billion. This will ensure healthy reserve renewals and steady production growth.
Among industrial commodities stocks, Rio Tinto (NYSE:RIO) is clearly attractive with a forward P/E of 8.6 times and a dividend yield of 6.9%. With interest rate cuts and possible stimulus in place, industrial commodity prices are expected to trend higher, and Rio Tinto stock will be able to benefit. Indeed, Rio Tinto’s cash flow remains strong even in a relatively low commodity price environment. In H1 2024, the company reported operating cash flow and free cash flow of $7 billion and $2.8 billion, respectively.
While the iron ore business remains the main source of cash flow, the company is also seeking to diversify, focusing on metals with the potential to support the global energy transition, including aluminium, copper, titanium dioxide and lithium, which are likely to create value over the next five years. Overall, Rio Tinto has a strong balance sheet and solid cash flows and a sustainable dividend, and management is likely to continue to create value for shareholders through share buybacks.
