I’ve had a stock wishlist for a long time. It’s an ongoing list made up of shares I’d like to buy when I have spare money. At the moment, there’s one growth stock on the list I think could do very well next year, so I’m thinking about buying it soon.
Higher metals prices
I’m talking about Fresnillo (LSE:FRES), the precious metals mining company that’s seen a 13% rally in the share price over the past year.
It primarily operates out of Mexico with three gold and silver mines in the region. As well as generating revenue from these, it has many ongoing, active exploration projects, which will be a source of future profits for the company.
So far in 2024, gold prices have jumped by 28%, with silver increasing 32%. As a result, Fresnillo’s felt the benefit of being able to sell at a higher market price. The half-year report showed EBITDA of $544.2m. This was a significant jump from the H1 2023 figure of $351m.
Why I like the stock for next year
Precious metals increased in value this year for a few reasons. Both gold and silver are seen as safe havens. This means that when investors are worried about the global economy or geopolitical tensions, they tend to buy the metals as a store of value.
Further, when interest rates fall, precious metals tend to rise in price. This is because they don’t pay out any income. So when interest rates rise, gold and silver tend to be sold in favour of income paying assets such as dividend shares. Yet when interest rates fall, the opposite happens.
As I look to 2025, I think both these themes will continue. I expect geopolitics to be very sensitive, with a new US President and political issues in France and Germany. As for interest rates, I believe these will fall sharply in most developed nations as inflation pressures keep easing. On that basis, gold and silver prices should keep rallying.
This should benefit Fresnillo. Higher prices should continue to boost revenue in the same way that it’s done in 2024. This should translate to larger profits and a higher share price.
Benefits and risks
In terms of company-specific factors, I think Fresnillo’s well positioned to take advantage of higher precious metal prices. It’s the world’s largest silver producer and has the setup in place to keep production levels high.
In the Q3 production report, the CEO spoke of the “consistent operating performance” meaning that the “full year guidance set out in January remains unchanged”. If the business can keep to 2025 forecasts, I think the future looks bright.
One risk’s the impact of natural disasters. For example, heavy rains earlier in the year negatively impacted production at the Herradura gold mine. These type of weather-related incidents can’t be planned for, so it’s always a potential concern.
Overall, I really like the stock as a way to express my view on precious metals. I’m seriously thinking about buying it shortly.
