Key points
- Gold can be a safe investment during turbulent times
- Polymetal International is underpinned by strong profits and earnings
- The Veduga mine is expected to produce 200,000 ounces of gold for 21 years
Recently, a lot of attention has been given to the prospect of a stock market crash. At its most basic level, this essentially involves a mass sell-off of stocks. Concern has grown from the poor share price performance of technology stocks, like Facebook owner Meta. This stock has fallen 31% since the beginning of February, and 18% in the past year. Indeed, the NASDAQ 100 index is down 11.5% since the start of 2022, despite rising 6.6% in the last year. I think I’ve found a FTSE 100 gold stock, Polymetal International (LSE: POLY), to mitigate any potential crash. Let’s take a closer look.
Gold for a stock market crash
Getting exposure to gold can be a great way to plan for a serious downturn in equity markets. It is generally a safe haven during difficult times. Indeed, it could be argued that gold and stock markets are negatively correlated. While gold rises on panic and crisis, equity markets rally on economic growth.
While gold, as a commodity, may perform well during a stock market crash, it is worth noting that gold stocks may not. This is because they are stocks themselves and may get caught up in any sell-off. Within equity markets, though, I still think gold stocks are the best way to prepare for a stock market crash.
A FTSE 100 gold stock
A gold and silver mining firm, Polymetal International operates mines across Russia and Kazakhstan. Company results tell a story of solid and consistent growth. For the calendar year 2016, earnings per share (EPS) stood at just ¢90, increasing to ¢228 for the same period in 2020. By my calculation, this shows a compounding annual earnings growth rate of 20.4%. Needless to say, the business is going in the right direction.
What’s more, the company is predictably profitable. Profits before tax nearly trebled between the calendar years 2016 and 2020, growing to $1.4bn. As a potential investor preparing for a stock market crash, these results give me a great deal of reassurance.
A recent trading update for the three months to 31 December 2021, however, stated that capital expenditures had risen 5%. Some of this was due to purchasing excavators and trucks for new mining projects. The update also cited the continued risk posed by the pandemic, with some absences due to infection.
Nonetheless, management is focused on growth and expansion. Last month, it announced $471m investment in the Veduga mine in northwest Russia. This operation, so we are told, should yield 200,000 ounces of gold per year for 21 years. Consequently, the firm should be able to increase production in the coming years.
If we find ourselves in a stock market crash, I think gold is a good investment. Gaining exposure to this commodity through companies like Polymetal International is not without its risks. Overall, though, I think the underlying growth and profitability of this company would likely see me through turbulent times. I will be buying shares now.
Andrew Woods has no position in any of the shares mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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