Due to geopolitical and economic concerns, the “fear trade” is on, which bolsters the bull case for Sibanye Stillwater (NYSE:SBSW) stock. Based in South Africa, the company produces gold and platinum group metals (PGMs), which is significant. However, it’s also fair to point out that SBSW stock is a wildly risky idea. SBSW has fallen by 10.6% year-to-date and 44% in the past 52 weeks. While the gold market struggled previously due to rising interest rates, few sector-related stocks have been as volatile as SBSW. Still, the mining specialist wields a two-pronged weapon (gold and PGMs) that could make it enticing.
Therefore, I am bullish on SBSW stock.
Inflation Concerns Present the Obvious Case for SBSW Stock
With commodities being priced in U.S. dollars, it’s no shock to see the price of spot gold shoot higher. Historically, the yellow metal has played the role of the safe-haven asset. Given the numerous uncertainties facing global security, the fear trade has increased the demand for precious metals. Just as significantly, sticky inflation has translated to higher prices, which benefit SBSW stock.
What’s more, it’s not entirely clear that the Federal Reserve can adequately tackle the scourge of rising consumer prices. Earlier, inflation data pointed to an encouraging disinflationary trend. Therefore, heading into 2024, many discussions materialized about the central bank lowering benchmark interest rates.
However, a few factors may contribute to a narrative shift. First, the jobs market continues to post stronger-than-expected numbers. While economies strive for low unemployment rates, it also means that more money is chasing after fewer goods. That’s an inflationary dynamic, which supports the bullish argument for SBSW stock.
Second, energy prices have soared recently. Further, the geopolitical flashpoints in the Middle East and in Europe potentially threaten global oil supply chains. If these pathways encounter disruption, that could easily spike the cost of crude oil. Simultaneously, the concerns associated with oil disruptions could exacerbate the fear trade. Again, it’s another argument favoring SBSW stock.
There’s also domestic politics to consider. While the Fed acts independently of the executive branch, it’s not in the best interests of the nation to implement jarring monetary policies. That’s especially the case when the U.S. is facing unprecedented pressures, both at home and abroad.
In other words, the inflationary condition may stay elevated for a while, extending the catalyst for SBSW stock. However, Sibanye also has another catalyst up its sleeve that has little to do directly with inflation.
Hybrid Bonanza Should Help Lift Sibanye Stillwater
As mentioned at the top, Sibanye Stillwater mines PGMs, and I stated that it was important. One of the most critical PGMs is palladium. It plays a prominent role in the manufacturing of catalytic converters, which mitigate the environmental impact of internal combustion engines.
In recent years, palladium demand faced an uncomfortable conundrum. With EV sales booming under the prospect of the platform becoming the standard of powered mobility, combustion-based vehicles could gradually be phased out. In such a scenario, there would be limited demand for catalytic converters, thus cratering the need for palladium.
However, EV sales growth has slowed, causing automakers to scale back or delay their transition plans. What’s more, sales of hybrid vehicles – essentially gasoline-powered cars that boost their efficiency through an integrated battery system – have been flying out of dealership doors. Downwind, that’s a massive positive for SBSW stock.
As J.D. Power pointed out, hybrids not only utilize catalytic converters, but their iterations require a higher emissions standard compared to non-hybrid combustion-powered vehicles. “This is due to hybrid catalytic converters operating at a lower temperature since the combustion engine does not operate full-time. To mitigate the natural temperature difference, hybrid catalytic converters use precious metals including platinum, palladium, and rhodium,” states the consumer research firm.
According to Sibanye Stillwater’s corporate profile, the company mines all three of the aforementioned metals. So, should hybrid vehicle sales dominate—and all indications point that they will—SBSW stock is surprisingly well positioned.
Granted, when it comes to precious metals, the focus right now is on gold. The beauty of SBSW stock is that the underlying enterprise gives you the gold play along with the critical PGMs. From an economic and industrial standpoint, palladium may be the most important precious metal due to the hybrid bonanza.
SBSW’s Valuation Under the Spotlight
Currently, SBSW stock trades at 5x trailing-year earnings and 0.5x trailing-year revenue. Compared to the broader gold sector, Sibanye is undervalued. On average, gold miners feature a trailing-year earnings multiple of 37.24x and a revenue multiple of 2.6x.
However, the challenge in describing SBSW stock as a truly objective discounted opportunity is the forward projection. Previously, Sibanye suffered from company-specific headwinds such as labor strikes. Still, with the negativity being priced in and with the newfound relevance of PGMs, Sibanye offers arguably a unique opportunity.
Again, it’s not just a gold miner but also a producer of industrially pertinent assets. As such, SBSW stock deserves a higher multiple. Therefore, it’s an upside opportunity that relatively few investors are paying attention to.
Is SBSW Stock a Buy, According to Analysts?
Turning to Wall Street, SBSW stock has a Hold consensus rating based on no Buys, three Holds, and zero Sell ratings. The average SBSW price target is $5.33, implying 9.8% upside potential.
The Takeaway: SBSW Stock Is Double the Fun
As with other gold miners, Sibanye Stillwater benefits from stubborn inflation and the fear trade. However, even if those elements didn’t exist, the company also specializes in PGMs. And PGMs are extremely critical for the production of catalytic converters, a product that should see booming demand thanks to rising hybrid vehicles. Thus, SBSW stock deserves a valuation rethink to the upside.
