Are Newcrest (ASX:NCM) shares an inflation-hedging buy?

These fund managers think Newcrest might make a good investment…

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St Barbara share price Minder underground looks excited a he holds a nugget of gold he has discovered.

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The Newcrest Mining Ltd (ASX: NCM) share price has been an underwhelming one in recent times. Over the past 12 months, shares in the gold miner have eroded 10.5% in value. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) has gained 11.6%.

During the past year, the precious metal has traded roughly flat, currently valued at approximately A$2,490 an ounce. This is despite global economies dramatically increasing the supply of money through significant monetary policies.

Although the Reserve Bank of Australia is adamant it won’t be raising interest rates anytime soon, some investors are already concerned about the potential impacts of rising inflation.

So, could the Newcrest share price still serve as an inflation hedge?

Two fund managers think it could be

It is no secret that gold and gold mining companies are often considered an inflation hedge, but not all companies are made the same.

There are more than 180 self-defined gold mining companies on the ASX, with only the 12 largest holding a market capitalisation greater than $1 billion. For Sydney-based Perennial Partners, the two biggest publicly listed gold mining companies are of most interest.

In its recent report, the fund manager noted both the Newcrest share price and Northern Star Resources Ltd (ASX: NST) as inflation hedge bets it likes. This is despite the team behind the fund holding a positive outlook for the overall economy.

Interestingly, Perennial Partners isn’t the only fund eyeing off Newcrest at these prices. In a submission to the Australian Fund Managers Foundation stock picking competition, known as the ‘The Golden Bull‘, Firetrail Investments made Newcrest its top pick for the year ahead.

The high conviction fund manager described why the gold mining giant was its pick, stating:

Newcrest is one of the biggest producers globally, they’ve eliminated all debt and have multiple growth irons in the fire. With gold having endured a flat 12 months, possibly due to the rise of cryptocurrencies as a sexier market hedge. It’s all pointing to a potentially explosive year for the gold price, and these guys are one of the purest ways to play that on the ASX.

Looking beyond the Newcrest share price

While the gold price has been reasonably flat and the Newcrest share price has been falling, the miner’s revenue and profits have been climbing.

In its full-year results for FY21, revenue increased 17% to $4.58 billion. At the same time, statutory earnings jumped a remarkable 80% to $1.16 billion. This allowed the company to increase its final dividend by 129% to 40 US cents per share fully franked.

Based on the current Newcrest share price, the company is trading on a price-to-earnings (P/E) ratio of 12.3 times.

Should you invest $1,000 in Newcrest Mining right now?

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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