I’m looking to invest some more cash in my Stocks and Shares ISA soon. Given the fragility of the global economy, I need to think carefully when selecting individual UK shares.
Stock markets have staged a mild rally following Monday’s colossal selloff. But investors remain nervy — the VIX, also known as the ‘fear index’, rose to its highest level since the Covid-19 crisis in 2020 this week.
In this landscape, it could be a good idea for me to increase my exposure to safe-haven assets like precious metals. If signs of a US recession continue climbing, gold in particular could rise even further. The yellow commodity hit a fresh record above of $2,480 per ounce just a few weeks ago.
Gold’s looking good
Along with fears over the American economy, other potential drivers for gold values include:
- A steady stream of global interest rate cuts, which in turn would fuel inflation.
- Rate reductions by central banks, and the Federal Reserve, in particular. This might weaken the US dollar and make gold purchases cheaper.
- Growing conflict in the Middle East, allied with rising tensions between the West and Russia and China.
- Continued weakness in the Chinese economy.
Buying physical gold, or a gold-backed exchange-traded fund (ETF), could be a good idea in this climate. But I’d prefer to buy shares in a gold mining company.
If I buy a dividend-paying gold miner, I can receive an income and benefit from any rise in gold prices. And if the company I buy performs strongly, I could make some truly stunning returns.
A top miner
Hochschild Mining (LSE:HOC) is one such company I have my eye on right now. A combination of rising precious metal prices and strong production news has thrust its share price higher in recent months. It could have further to go.
The business — which operates mines across the Americas — dug up 83,034 gold equivalent ounces, and 6.9m silver equivalent ounces in the first six months of 2024.
This was above City forecasts. And with Hochschild’s Inmaculada and Mara Rosa projects, in Peru and Brazil, respectively, firing on all cylinders, the company looks on the verge of delivering strong and sustained performances.
The eight analysts with ratings on Hochschild shares certainly think so. So they’ve slapped a 12-month price target of 294.8p per share on the company. That’s a 39% premium from current levels.
Too cheap to ignore
Hochschild’s low, low share price certainly leaves scope for fresh share price gains.
The firm’s expected to burst back into the black in 2024 after previous losses, with earnings of 22.5p per share. This leaves it trading on a price-to-earnings (P/E) ratio of 7.4 times.
To add an extra sweetener, Hochschild shares also carry a 1.3% dividend yield. This might not be the biggest yield out there. But as I said earlier, I’d receive no income at all after buying physical gold or a metal-backed ETF.
Investing in any mining stock can be risky business. Hochschild is operating strongly today, but production problems might spring up out of nowhere to dent earnings forecasts.
However, I believe this danger is baked into the company’s mega-low valuation. I think it could be a great stock for me to buy in this climate.
