In this article, we discuss the 5 precious metals stocks to buy amid market volatility. If you want to read our detailed analysis of these stocks, go directly to the 10 Precious Metals Stocks to Buy Amid Market Volatility.
5. Encore Wire Corporation (NASDAQ:WIRE)
Number of Hedge Fund Holders: 21
Encore Wire Corporation (NASDAQ:WIRE) is a Texas-based firm that makes and sells electrical components and equipment. As market volatility increases, Encore Wire Corporation (NASDAQ:WIRE) offers investors the comfort of reliable dividend payouts. The company has paid a dividend to shareholders for fourteen consecutive years. In early November, it declared a quarterly dividend of $0.02 per share, in line with previous. The forward yield was 0.06%.
Encore Wire Corporation (NASDAQ:WIRE) has also been attracting positive interest from hedge funds. At the end of the third quarter of 2021, 21 hedge funds in the database of Insider Monkey held stakes worth $116 million in Encore Wire Corporation (NASDAQ:WIRE), up from 20 in the previous quarter worth $77 million.
4. Steel Dynamics, Inc. (NASDAQ:STLD)
Number of Hedge Fund Holders: 23
Steel Dynamics, Inc. (NASDAQ:STLD) operates as a steel producer. The stock has returned more than 56% to investors in the past year as the firm shatters earnings records and steel prices hit new prices. One of the other major advantages of owning the stock is that the firm also operates as a metal recycler, making it a rare sustainability play in an industry that is renowned for carbon emissions.
This is why elite hedge funds are bullish on Steel Dynamics, Inc. (NASDAQ:STLD) as a new fiscal year begins. Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Steel Dynamics, Inc. (NASDAQ:STLD) with 1.6 million shares worth more than $96 million.
3. Wheaton Precious Metals Corp. (NYSE:WPM)
Number of Hedge Fund Holders: 27
Wheaton Precious Metals Corp. (NYSE:WPM) is a Canadian mining company with prime interests in gold deposits. On February 8, Wheaton Precious Metals Corp. (NYSE:WPM) announced that it had entered into an agreement with Sabina Gold & Silver to purchase a part of the Goose Project in Nunavut from the latter. Wheaton plans to pay Sabina $125 million and will receive 4.15% of payable gold production from the mine.
Elite investors back Wheaton Precious Metals Corp. (NYSE:WPM) as it embarks on a growth plan. At the end of the third quarter of 2021, 27 hedge funds in the database of Insider Monkey held stakes worth $347 million in Wheaton Precious Metals Corp. (NYSE:WPM), up from 26 in the previous quarter worth $471 million.
In its Q2 2020 investor letter, First Eagle Investment Management, an asset management firm, highlighted a few stocks and Wheaton Precious Metals Corp. (NYSE:WPM) was one of them. Here is what the fund said:
“The strength in the price of gold was generally supportive of gold-related equities whose performance historically has been leveraged to the gold price. One such example is Wheaton Precious Metals, a Canadian streaming company that maintains, in our view, a high-quality, low-cost portfolio of precious metal purchase agreements that is well diversified across mining partners, geographies and metal types. Despite pandemic-related suspensions of six of its mining assets, Wheaton posted a 50% year-over-year increase in operating cash flow for the first quarter, which allowed the company to reduce its net debt while raising its quarterly dividend payment.”
2. Nucor Corporation (NYSE:NUE)
Number of Hedge Fund Holders: 25
Nucor Corporation (NYSE:NUE) makes and sells steel products. It is one of the largest steel firms in the world and the stock has gained over 114% in the past year as investors pile into the stock in hopes of shielding themselves from the volatility associated with growth equities in a high interest rates environment. Nucor Corporation (NYSE:NUE) has paid a growing dividend to shareholders for close to five straight decades.
Nucor Corporation (NYSE:NUE) is one of the favorite hedge funds stocks in the precious metals world. At the end of the third quarter of 2021, 25 hedge funds in the database of Insider Monkey held stakes worth $199 million in Nucor Corporation (NYSE:NUE), compared to 32 in the preceding quarter worth $196 million.
In its Q1 2021 investor letter, Madison Funds, an asset management firm, highlighted a few stocks and Nucor Corporation (NYSE:NUE) was one of them. Here is what the fund said:
“This quarter we are highlighting Nucor (NUE) as a relative yield example within the Materials sector. NUE is a leading manufacturer of steel and steel products. It is the largest steelmaker in the U.S. based on production volume with a vertically integrated business model. The company has a low fixed-cost position due to its use of electric arc furnaces, which are cleaner, less labor and energy-intensive than blast furnaces, and this results in low total costs per unit of steel produced. Our view is that a low cost position is an important attribute in a commodity business. NUE’s historical financial record supports this view as it has been profitable every year except for one over the past fifty years, unlike many steel producing peers. In addition, the company has a diverse product and mill portfolio that takes market share over time. We believe its scale, low fixed-cost position, consistent record of profitability and diverse mill portfolio result in a sustainable competitive advantage versus peers.
Our thesis on NUE is that it should benefit from higher steel prices as the U.S. economy recovers from the downturn caused by the Covid-19 pandemic. The company may also be a beneficiary of on-shoring, where manufacturing returns to the United States. These two dynamics should drive growth this year, and if the United States Congress passes new infrastructure legislation, that will provide another avenue for growth longer-term.
Importantly, NUE has a strong balance sheet and flexible capital spending model that can quickly adjust to changing economic conditions. If economic growth slows, NUE can quickly reduce its cost structure, something it has done successfully in prior cyclical downturns. The company has low financial leverage as its net debt/adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was only 0.9x at the end of last year, and it consistently generates positive free cash flow. These favorable characteristics differentiate NUE from other steel producers and help the company gain market share through disciplined capital allocation.
The fund purchased NUE at $56 in January, 2021, after it reached a low valuation with an attractive dividend yield and relative dividend yield versus the S&P 500. At the time or purchase, the stock yielded 3.3% and had a relative dividend yield of more than 2x the S&P 500, which was the high end of its historical range as shown in the bottom pane in the graph. The company is also a Dividend Aristocrat that has raised its dividend annually for 48 years. We expect continued dividend increases going forward.
Risks to the thesis include a prolonged economic downturn, lower steel prices and increasing steel import volumes that could hurt NUE financial performance. We believe these risks are manageable as economic growth is expected to be well above average this year. Specifically, Goldman Sachs is forecasting U.S. gross domestic product (GDP) growth of +8% in 2021, which would be the fastest pace of growth since 1950. Strong growth is likely to result in higher manufacturing activity, which we believe would be supportive of higher steel prices and limit risks to the thesis.”
1. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 66
Freeport-McMoRan Inc. (NYSE:FCX) is a mining firm with prime interests in copper. On December 13, Stifel analyst Alex Terentiew had initiated coverage of Freeport-McMoRan Inc. (NYSE:FCX) stock with a Buy rating and a price target of $48, highlighting the bullish outlook for copper futures amid rapid digitalization and increasing adoption of EVs across the world. The analyst noted that Freeport-McMoRan Inc. (NYSE:FCX) was “well-positioned” to generate higher free cash flows to ride this boom.
Hedge funds concur with analysts in this bullish view of Freeport-McMoRan Inc. (NYSE:FCX). At the end of the third quarter of 2021, 66 hedge funds in the database of Insider Monkey held stakes worth $3.2 billion in Freeport-McMoRan Inc. (NYSE:FCX), compared to 76 in the preceding quarter worth $3.8 billion.
You can also take a peek at 10 Best Micro-Cap Stocks to Invest In and Top 10 Stocks to Buy According to Charles Pollnow’s Triple Frond Partners.
