We recently published a list of 7 Cheap Canadian Stocks To Invest In. In this article, we are going to take a look at where Kinross Gold (NYSE:KGC) stands against the other cheap Canadian stocks to invest in.
According to the report Economic Outlook Canada Q4 2024 by S&P Global on September 24, Canada’s economy has been showing signs of improvement recently, but the growth is expected to remain below the country’s potential. The country’s GDP growth is expected to be 1.2% in 2024, which is a modest increase from the previous year. However, this growth rate is still short of the country’s potential growth rate of 1.8%, indicating that the economy is not growing at its full capacity.
The labor market also shows signs of softening, with weaker hiring and rising unemployment. This is a cause for concern, as a strong labour market is essential for driving economic growth. The unemployment rate is expected to rise to 7% by the end of 2024 before falling in 2025. This increase in unemployment will likely have a ripple effect on the economy, as higher unemployment rates can lead to reduced consumer spending and decreased economic activity.
Another area of concern is the relationship between wage growth and productivity growth. Wage growth is currently outpacing productivity growth, which is inconsistent with the 2% inflation target. This means that wages are increasing at a faster rate than the rate at which workers are producing goods and services. This can lead to higher production costs and reduced competitiveness for Canadian businesses.
Despite these challenges, the Bank of Canada (BoC) is shifting its focus to downside risks to the economic growth outlook. The BoC has already cut interest rates for the third consecutive time in an effort to stimulate the economy. Further interest rate cuts of 25 basis points are expected in the fourth quarter and January. These interest rate cuts are intended to make borrowing cheaper and encourage businesses and consumers to invest and spend.
The recovery in 2025 is expected to be driven by fixed investment, particularly residential and non-residential investment. This is a positive sign, as fixed investment is an important driver of economic growth. However, consumer spending is expected to remain subdued due to the effect of higher interest rates. Higher interest rates can make borrowing more expensive, reducing consumer spending and slowing economic growth.
Another key factor that will impact the economy is changes to immigration policies and their effectiveness. Immigration has been an important driver of economic growth in Canada, as it brings in new workers and skills to the labor market. However, changes to immigration policies can impact the number of immigrants coming to Canada and their ability to contribute to the economy.
Canada’s Economy Poised to Catch Up with US
James Orlando, a senior economist at TD Bank, is bullish on Canada’s economic growth prospects, particularly in the wake of the Bank of Canada’s recent interest rate cuts. He believes that this change in interest rate policy could be the catalyst that helps Canada close the economic growth gap with the United States. For years, Canada’s economic growth has trailed behind that of the US, but Orlando thinks that the rate cuts could be the turning point.
According to Orlando, the Canadian economy is highly sensitive to interest rate fluctuations, especially in the housing market. With a high level of debt and a reliance on variable-rate mortgages, Canadians are particularly vulnerable to changes in interest rates. However, with the recent rate cuts, Orlando expects to see a surge in investment in the housing market, which could lead to improved affordability. Orlando is confident that the rate cuts will stimulate economic growth and create new job opportunities.
The Canadian economy is also poised to benefit from increased investment in key areas such as the green transition and electric vehicle production. With a growing population and a need for more housing, Orlando anticipates a significant increase in investment in the housing market and other sectors. As the economy continues to grow, Orlando expects to see a rise in consumer spending, which will further fuel economic growth. While challenges still lie ahead, Orlando is optimistic that the Bank of Canada’s rate cuts and the resulting economic stimulus will drive growth and create jobs in the Canadian economy.
Canada’s economy is expected to experience modest growth in the coming years, driven by fixed investment and a soft labor market.
Our Methodology
To compile our list of 7 cheap Canadian stocks to invest in, we used the Finviz and Yahoo stock screeners to find the largest Canadian companies. From that list, we screened for companies that are trading at a forward P/E ratio of under 20 as of September 28. We then narrowed our choices to 7 stocks according to analyst upside potential. The list is sorted in ascending order of their upside potential as of September 28.
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).
Aerial shot of a mine entrance, the bedrock of the company’s gold and silver extraction.
Kinross Gold (NYSE:KGC)
Upside Potential: 8.59%
Forward P/E Ratio as of September 28: 15.96
Number of Hedge Fund Investors: 37
Kinross Gold (NYSE:KGC) is a global gold mining company with operations in the Americas, West Africa, and Russia. The company focuses on high-quality development projects and has several projects on the horizon, including the Great Bear project in Ontario, the Manh Choh project in Alaska, and the Lobo-Marte project in Chile.
On September 10, Kinross Gold (NYSE:KGC) released the Preliminary Economic Assessment (PEA) for its Great Bear Project in Ontario, Canada. The study envisions an open-pit and underground operation that will produce 430,000 ounces per annum on average, with production of 518,000 ounces per annum in its first eight years. The project is expected to have a very modest throughput and overall footprint of 10,000 tonnes per day, with industry-leading open-pit grades of 3.0 g/t of gold. The company has also reported an impressive intercept of 32.4 meters at 29.6 g/t of gold at Round Mountain, making it a top-12 intercept drilled in Nevada over the past four years on a gram-meter basis.
In Q2, Kinross Gold (NYSE:KGC) reported a 4% decline in production to 535,300 gold-equivalent ounces (GEOs). The company’s lower production was related to a sharp decline in output at Tasiast, Paracatu, and La Coipa. However, the company’s U.S. operations, including Fort Knox and Round Mountain, reported higher production. Despite the decline in production, the company’s revenue increased by 10% year-over-year to $1.43 billion, driven by higher gold prices. The company’s all-in-sustaining costs (AISC) increased by 7% to $1,387 per ounce, but the higher gold price offset the increase in costs, resulting in a 40% increase in AISC margins to $955 per ounce.
Moreover, Kinross Gold (NYSE:KGC) has been focused on optimizing production and cost controls, which has helped offset volatile gold prices. Kinross Gold (NYSE:KGC) is trading at a forward PE of 15.96, a 4.12% discount to its sector median of 16.65. Analysts expect the company to increase its earnings by 32.38% this year and have a consensus on the stock’s Buy rating, setting an average share price target at $10.68, which represents an 8.59% upside potential from its current level.
Overall KGC ranks 5th on our list of cheap Canadian stocks to invest in. While we acknowledge the potential of KGC 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 KGC 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 at Insider Monkey.