It’s been a rough start to 2025.
The truth is there hasn’t been much working in the current market environment. But under the surface, a few key areas are showing strength.
We’ve experienced a rotation into defensive areas such as consumer staples and health care. We’ve also seen mining companies thrive as metals prices reach historic highs. Gold, for example, is pressing up against $3,000 per ounce for the first time ever.
Historically viewed as a hedge against inflation and currency devaluation, precious metals can be a great portfolio diversifier – particularly during times when most equities are falling. There are numerous ways to gain exposure to precious metals. In addition to owning physical metals, investors can access these commodities through exchange-traded funds, mutual funds, and individual mining stocks.
Gold is a unique precious metal known for its extreme durability, malleability, and heat and electricity conduction properties. Most investors are familiar with gold as an input for jewelry-making.
While the past few months have been frustrating for passive equity investors, gold has made a stealthy move higher. We can see below that gold (+10.79%) has widely outperformed the S&P 500 (-1.47%) year-to-date:
Image Source: StockCharts
Gold Hits Record Highs as Mining Stocks Flourish
One of the best ways to target metals from an investment perspective is to own the stocks of mining companies. These stocks typically outperform the underlying precious metals due to growth in their intrinsic value.
Precious metals do not have the potential for intrinsic value growth as stocks do. The ability of companies to increase their intrinsic value has always enabled stocks to outperform other types of investments. As the intrinsic value of a company grows, the company can increase its production or services which in turn creates more income.
Mining stocks stand to benefit from higher gold prices. The Zacks Mining – Gold industry group currently ranks in the top 27% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months, just as it has so far this year:
Image Source: Zacks Investment Research
Historical research studies suggest that approximately half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By targeting stocks contained within the top industry groups, we can dramatically improve our odds of success.
Alamos Gold AGI is one stock in this industry that is engaged in the acquisition, exploration, development, and extraction of precious metals. The company primarily explores for gold and silver deposits.
Alamos has exceeded earnings estimates in three of the past four quarters, with an average earnings surprise of 7.93% over that timeframe. The stock is currently breaking out and has surged more than 30% year-to-date.
Analysts covering AGI are in agreement and have raised 2025 EPS estimates by 13.16% in the past 60 days. The Zacks Consensus Estimate now stands at $1.29/share, reflecting potential growth of 61.3% relative to last year.
Image Source: Zacks Investment Research
Bottom Line
A weakening US dollar is helping set the stage for further gains in metals. Gold could very well be in store for a sustained period of outperformance.
The best way to take advantage of this move is via gold exploration and mining stocks. And with the help of our team here at Zacks, you’ll be ready to capitalize on the opportunity by uncovering leading stocks like AGI.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
