We recently compiled a list of the Best TSX Stocks To Invest In Now. In this article, we will look at where Agnico Eagle Mines (NYSE:AEM) ranks among the best TSX stocks to invest in now.
Canada’s Economy Shows Signs of Stabilization
According to Deloitte, the Canadian economy is showing signs of stabilisation after three years of turmoil, with inflation steadily declining since June 2022. Canada’s economy grew stronger in the first half of 2024 than previously forecast, but the pace of recovery is expected to be limited in the second half of the year due to slower household spending. The updated forecast projects real GDP growth of 1.2% for 2024, followed by 2.6% growth in 2025, with real GDP per person falling by 1.6% in 2024 before clawing back to gain 1.1% growth in 2025.
The Bank of Canada has begun to ease its monetary policy, paving the way for stronger economic growth. However, the pace of monetary easing is uncertain, and weak investment and productivity performance continue to pose a risk to Canada’s long-term economic outlook. The Bank of Canada is expected to cut interest rates at a gradual pace, with a rate cut in September followed by another in December and March. The overnight rate is expected to settle at a neutral level of 2.75% by the end of next year, assuming inflation continues to decrease and returns to the 2% target by the second quarter of next year.
Business sentiment in Canada is beginning to recover, with improved confidence across regions and sectors. However, business investment has been weak, directly impacting productivity and living standards. Since the 2014 commodity price crash, labour productivity in Canada has remained flat, while unit labour costs have increased by over 30%.
The economy’s current challenge is generating enough jobs to keep up with Canada’s rapidly growing population. Despite a strong pace of growth, employment has not kept up with population growth over the past 12 months, resulting in a rise in the unemployment rate. Wage growth slowed dramatically in the first quarter of 2024, and slower wage growth is expected to be the norm this year and next.
Canadian households are the most indebted in the G7, and the increases in interest rates since 2022 have hit their pocketbooks. Real consumer spending per person has fallen in five of the last six quarters, and the effect on home-building has been even more dramatic. However, consumer spending and residential investment are expected to increase as interest rate decreases work to restore demand.
Economist Predicts Stronger Economic Growth for Canada
James Orlando, a senior economist at TD Bank, is optimistic about Canada’s economic growth prospects, particularly in light of the recent interest rate cuts by the Bank of Canada. According to Orlando, Canada’s economic growth has consistently lagged behind the United States, but a change in interest rate policy could help close the gap. The Bank of Canada’s decision to cut interest rates is expected to lead to lower mortgage rates and increased consumer spending. This, in turn, could boost economic growth and help Canada catch up with the United States.
Orlando notes that the Canadian economy is highly sensitive to interest rates, particularly in the housing market. With high levels of debt and a reliance on variable-rate mortgages, Canadians are more likely to feel the pinch of higher interest rates. However, with the Bank of Canada’s rate cuts, Orlando expects to see increased investment in the housing market and potentially improved affordability. While affordability is still a concern, Orlando believes that the rate cuts will help to stimulate economic growth and create jobs.
Orlando also notes that the Canadian economy is expected to benefit from increased investment in areas such as the green transition and the production of electric vehicles. With a growing population and a need for more housing, Orlando expects to see increased investment in the housing market and other areas of the economy. While there are still challenges ahead, Orlando believes that the Bank of Canada’s rate cuts and the resulting economic stimulus will help to drive growth and create jobs in the Canadian economy.
While Canada’s economy is showing signs of stabilisation, the economy still faces significant challenges, including weak investment and productivity performance, a rapidly growing population, and high household debt levels. However, with the Bank of Canada easing its monetary policy and interest rates expected to decrease, consumer spending and residential investment are expected to increase, paving the way for stronger economic growth in the long term. With that in context, let’s take a look at the 8 best TSX stocks to invest in now.
Our Methodology
For this article, we used Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 40 largest companies in Canada by market cap. From that list, we narrowed our choice down to the 8 stocks that were the most widely held by hedge funds, as of Q2 of 2024. The list is sorted in ascending order of the number of hedge fund investors in each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Agnico Eagle Mines (NYSE:AEM)
Number of Hedge Fund Investors: 50
Agnico Eagle Mines (NYSE:AEM) is the largest gold miner in Canada and the third-largest globally, with a portfolio of 11 mines spanning across Canada, Australia, Finland, and Mexico. Agnico Eagle Mines (NYSE:AEM) boasts a proven track record of expanding production and reserves, with a pipeline of near to mid-term opportunities to drive further growth.
In Q2 2024, Agnico Eagle Mines’ (NYSE:AEM) gold production reached 0.9 million ounces, bringing the total for the first half of 2024 to 1.77 million ounces. This puts the company on track to meet the upper end of its production guidance for the year. With strong production and rising gold prices, Agnico Eagle Mines (NYSE:AEM) revenue has increased by 20.9% year-over-year in Q2, and by 21% year-over-year for the first half of 2024.
The company’s margins have also remained strong, with an adjusted net margin of 23.4% in H1, up from 16.5% in 2023. These numbers have led to an upgrade in projections, with revenue expected to increase by 19.5% in 2024, and adjusted earnings per share (EPS) expected to reach $3.45, a 10% increase from previous forecasts. Alluvium Asset Management said the following regarding Agnico Eagle Mines (NYSE:AEM) in their second-quarter 2024 investor letter:
“Our gold miners had quite divergent performance, Agnico Eagle Mines Limited (NYSE:AEM) was up 11.4%, but Regis Resources was down 12.9%. They both provided quarterly updates. Regis reported business disruptions due to poor weather, but management maintained its output and cost guidance. It also announced the approval of two underground projects that will add around 25% to production levels from 2027, but they will cost circa AUD 150m. Agnico reported more positive results and reiterated guidance. We have revised our long-term gold price and exchange rate assumptions (which remain conservative). On our earnings based models we still view Regis as cheap and Agnico as expensive. But that ignores management, and, to a large extent, growth prospects. And when we consider those factors the equation looks decidedly more balanced. So despite Regis trading at an even larger discount to our valuation we have not bought more, and despite Agnico trading at an even larger premium to our valuation, we have not recently sold any. The Fund’s combined position in these gold miners is 6.6%.”
Gold prices reached an all-time high of $2,670 per ounce on September 25. According to J.P. Morgan Research, gold prices are expected to remain stable at $2,500 per ounce by the end of 2024 and rise to $2,600 per ounce in the first half of 2025. Agnico Eagle Mines (NYSE:AEM) is well-positioned to capitalise on this upward trend in gold prices. In the second quarter, Agnico Eagle Mines’ (NYSE:AEM) stock was held by 50 hedge funds with stakes worth $767.39 million.
Overall AEM ranks 4th on our list of the best TSX stocks to invest in now. While we acknowledge the potential of AEM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AEM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.