E Newmont Goldcorp: Why This Negative Beta Stock Could Outperform In A Market Downturn

Newmont Goldcorp (NEM) has a beta of -0.05 and thus it is one of the three stocks of the S&P 500 that have a negative beta. This means that the stock tends to rise when the S&P declines and vice versa. This feature offers certain advantages and hence investors should not dismiss this type of stocks. Nevertheless, as Newmont Goldcorp is trading near its 5-year high, the big question is whether the stock is attractive.

Beta: What It Means, And Why It's Important

The volatility of a stock against a benchmark, usually the S&P 500, is called beta. A beta of 1.0 means that the stock moves equally with the S&P. High-beta stocks outperform the index during good periods but they underperform during bear markets or sell-offs. On the contrary, low-beta stocks are more resilient and thus they outperform the market during rough periods.

Many investors erroneously ignore this parameter of their stocks, claiming that they have a long-term investing horizon and hence they ignore the swings of their stock prices. Unfortunately, this is much easier said than done. During bear markets, most investors cannot tolerate the bleeding of their portfolio. Consequently, they sell many of their stocks, usually the ones with the highest beta, and these losses have a great impact on the long-term returns of their portfolios. On the other hand, low-beta stocks are resilient during bear markets and outperform the market, thus making it easier for investors to keep these stocks even during fierce periods. This advantage should not be underestimated.

Newmont Goldcorp has a slightly negative beta thanks to the nature of its business. During market sell-offs, the price of gold usually increases, as investors view gold as a safe haven during market turmoil. This behavior of the price of gold results in a slightly negative beta of Newmont Goldcorp, whose earnings are closely tied to the price of gold.

Business overview

Newmont Goldcorp operates gold and copper mines on four different continents. The company, which resulted from the merger of Newmont with Goldcorp in April, is the largest producer of gold by market capitalization, output, and reserves.

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