While the FTSE 100 has fallen 18% so far in 2020, the Polymetal International (LSE: POLY) share price has soared by 49%. That might not be surprising as the gold price has climbed and taken gold miners along with it. Buying gold is a common wealth-preserving strategy when stock markets are in the dumps, and I can’t help thinking gold could remain high for quite some time.
Polymetal gave us an interim update Thursday. It does make me a bit twitchy to see a company opening with the news that there were no fatal accidents in the period. But the figures look good. Gold production for the second quarter is up 2% year-on-year, leading to a 30% rise in revenue. For the half, revenue rose by 20%.
There is some debt, unchanged at $1.69bn, which concerns me a little. But Polymetal is generating strong cash flow, and paid out $197m in final dividends for the 2019 year. Full-year production appears to be on track.
Buying shares in a gold miner like Polymetal can provide a hedge against hard times, and it would have helped offset some of the losses we’ve suffered this year. Even if you’d waited until the depths of the Covid-19 slump in March and April, you still had a chance to buy Polymetal shares ahead of their big surge.
I’d never buy the metal itself, as it doesn’t create any new wealth. But a gold miner with strong production that’s generating profits and paying dividends is an altogether more attractive proposition.
Technology gold?
Business software specialist Sage Group (LSE: SGE) has also bucked the stock market crash this year. The Sage share price did dip during the early days of the crisis. But it has recovered strongly to stand only 1% down for the year to date. Normally I wouldn’t be over-impressed by that kind of performance, but against a FTSE 100 fall of 18%, it does look good. The shares picked up 5% on Thursday, on the back of a positive trading update.
Sage is looking like a strongly defensive investment at the moment. Selling the software that companies need makes Sage very much a ‘picks and shovels’ investment in my view. Although I can see the attraction in gold miners, defensive shares are far more in line with my long-term strategy.
Sage has been moving to a cloud-based subscription service, along with much of the software business. That creates a recurring income stream rather than one-off sales of software packages, the latter being increasingly hard to sustain. And it seems to be paying off.
Recurring income
In the first nine months of the year, recurring revenue rose by 9%, powered by a 22.6% increase in software subscriptions. As the company continues its focus to migrate customers to its cloud model, I can see subscription sales heading to 100% of revenues.
Sage shares are on a forward P/E of around 25. And I think that’s good value considering its strong growth prospects.
So a defensive growth stock, or a gold miner, which is better? I think a combination of the two could help hedge your portfolio.
