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Lots of investors are searching for dirt cheap FTSE 250 shares to buy. Here’s one I think merits serious attention despite strong gains in the year to date.
Gold star
While it pulled back last quarter, Hochschild Mining‘s (LSE:HOC) share price remains 22% higher than it was at the start of the year. This has been driven by the stunning price gains enjoyed by both silver and gold.
The precious metals duo has declined more recently, with gold retreating from record highs above $3,500 per ounce. But pullbacks like this aren’t a surprise given both metals’ monster price gains, as investors have acted to book profits. I’m convinced the yellow and grey safe havens have substantial scope for rebound.
One reason is that the US dollar is in freefall, which has made it cheaper to buy buck-denominated commodities. In fact, the dollar index — which measures it against a basket of other major international currencies — plummeted 10% in the first half. That was the worst six-month performance since 1973.
I’m expecting the dollar to keep falling too, amid mounting pressure on the Federal Reserve to cut rates. Soaring US debts, concerns over the country’s economic and political landscape, and diversification away from US assets by investors and central banks could also continue to weigh.
Yet gold’s bull case isn’t just based upon the fate of the buck. Mounting geopolitical tension and the prospect of fresh conflicts has been a major precious metal price driver since 2022.
I’m expecting this to continue as global defence spending rises (NATO’s pledge to raise countries’ spending to 5% of their GDPs by 2035 last month further ups the ante).
But why buy a stock like Hochschild instead of a fund that tracks gold or silver? One reason is the potential for dividend income. Okay, a 1.5% dividend yield here for 2025 isn’t exactly vast. But it provides an added sweetener than owning a price tracker or physical metal doesn’t.
The second reason — and in this case, the chief one, in my opinion — is because buying stocks are a leveraged play that can produce supercharged gains. Because miners’ costs tend to be relatively fixed, their profits can grow at a far greater pace when gold and silver prices rise, resulting in superior share price gains.
Hochschild’s own all-in sustaining costs (AISCs) averaged $1,638 per ounce in 2024. That’s already significantly below the current bullion price.
Too cheap to ignore?
On the downside, buying mining stocks opens investors up to the sometimes volatile world of commodities production. Hochschild’s profits are vulnerable to an array of issues such as labour strikes, soaring costs and mechanical breakdowns. Indeed, its shares dropped in June excessive rainfall in Brazil forced it to downgrade its production forecasts.
But on balance, I think the potential advantages of owning Hochschild shares outweigh the risks. And at current prices it remains cheap, trading on a price-to-earnings (P/E) ratio of 9.7 times for 2025 and a sub-1 price-to-earnings growth (PEG) multiple of 0.1. I think it’s one to consider.
