3 Tickers Set to Thrive in the K-Shaped Economy

We are entering an unprecedented era of extremes.

On the one hand, we have the AI economy, which is in a state of euphoria. 

Yet, a starkly different reality is unfolding in other areas. We are seeing falling home prices in certain markets, continued weakness in commercial real estate, an increase in consumer bankruptcies, a stagnant labor market, and slowing consumer spending.

A major reason for this dichotomy is that tech stocks make up a disproportionate portion of market-cap weighted indices like the S&P 500. And, these stocks are at all-time highs and are reporting incredible results. For instance in Q2, technology stocks had 18% earnings growth and 22% revenue growth. 

This contrast defines the economy’s K-shaped divide, explains the stock market strength, and underscores the challenge faced by the Federal Reserve. 

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Manage Risk with the Zen Ratings

It’s also a challenging situation for investors. The economy’s duality is also evident in markets with underperformance in consumer, cyclical, small-cap, and mid-cap stocks. However, there’s also risk in chasing tech stocks given extreme valuations. 

This makes an objective, rigorous, multi-faceted, quantitative system like the Zen Ratings even more valuable. The Zen Ratings evaluates stocks across 115 different factors to identify the best stocks and sectors. It can allow investors to participate in bullish trends while also effectively managing risk. Over the last 2 decades, A-rated stocks have beat the S&P 500’s annual performance by nearly 3x. 

Why Rate Cuts Are Risky but Necessary

Policymakers at the Federal Reserve also have to grapple with the economy’s K-shaped divide. It’s a fascinating situation with no easy solution. Holding off on cutting rates translates into greater pain for interest rate sensitive parts of the economy, while negative trends in the economy could accelerate.

Of course, premature rate cuts do risk re-igniting inflation which is the primary reason that the Fed has held off despite a struggling economy and pressure from the administration.

Precious Metals in a K-Shaped Economy

The Federal Reserve’s challenge in balancing rate cuts with inflation risks creates a compelling case for precious metals. 

When real interest rates decline, precious metals like gold and silver become more attractive as stores of value. With the Fed facing pressure to ease monetary policy amid economic headwinds, and a new Fed Chair set to take office in May 2026, lower rates are a near certainty. 

Top Precious Metal Stocks to Consider

As these historically anomalous economic conditions fuel demand for precious metals, certain mining companies are well-positioned to benefit from rising prices and investor interest. 

Kinross Gold (KGC), Franco Nevada (FNV), and Pan American Silver (PAAS) stand out due to their strong operational profiles and exposure to gold and silver markets. 

Let’s explore why these companies are poised to capitalize on this trend.

1. Kinross Gold (NYSE: KGC)

Kinross Gold produced 2.17 million ounces of gold-equivalent last year, with operations in Mauritania and Brazil. A major factor in the stocks’ outperformance this year is achieving key benchmarks for its new Ontario production facility which is expected to boost output by 30% over the next few years.

This catalyst makes KGC an exceptional opportunity. This year, the company is forecasting 2.1 million ounces of gold production at an all-in cost of $1,500 per ounce. These low costs and long-term growth forecast are major reasons why the company has outperformed its peers and is reflected in its strong financial position and operational performance. The Zen Ratings are in agreement which is why it’s rated a Strong Buy (A).

In terms of Component Grades, KGC is in the top 1% for Financials. This is due to its lean operations, low levels of debt, strong free cash-flow generation, and durable margins. In its last 12 months, the company has generated nearly $2 billion in free cash flow and has used these proceeds to reduce debt, buy back stock, and increase dividends. 

KGC is also part of the Zen Investor portfolio, where it is up more than 95% since being added in October of last year. Each stock in the Zen Investor portfolio is hand-picked by 40+ year market veteran Steve Reitmeister, who uses a rigorous 4-step screening process to locate the highest-potential stocks. Click here to check out other stocks in the Zen Investor portfolio.

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2. Franco Nevada (NYSE: FNV)

Franco-Nevada is a leading gold royalty company that owns 432 streaming assets. In 2024, it sold 463,334 gold-equivalent ounces at an average cost of $278, making it one of the highest-margin plays in the sector. This year, the company forecasts between 465,000 and 525,000 ounces of production at similar costs. 

The combination of higher gold prices and growing production resulted in 42% revenue and 65% earnings growth last quarter. Given this, it’s not surprising to see that FNV holds a Buy (B) rating in the Zen Ratings. B-rated stocks have averaged 19.8% annual returns, topping the S&P 500’s average annual return of 10.5%. 

In terms of Component Grades, FNV earns a B for Momentum. Momentum measures factors like volume, volatility, share turnover, relative strength, and other factors indicative of short-term outperformance. The stock is up 11% over the past months and 41% over the past year. Since mid-April, the stock has traded in a tight range between $160 and $180. Meanwhile, many of its higher-beta peers like KGC and PAAS have already broken out higher. 

3. Pan American Silver (NYSE: PAAS)

Pan American Silver is a major producer of silver and gold with a diversified portfolio of mines across the Americas. Last year, it produced 21.1 million ounces of silver and 892,000 ounces of gold. It has been able to remain disciplined in managing costs and keeping production costs on the lower-end of the industry. 

In the last quarter, PAAS topped analysts’ expectations on the top and bottom-line. Compared to last year, earnings were up 291% with an 18% jump in revenues. According to the Zen Ratings, PAAS has an overall Strong Buy (A) rating. A-rated stocks are in an elite category with average annual performance of 32.5%. 

Looking at individual component grades, PAAS is unique in providing appeal to more conservative investors with a B in Safety and Financials as well as short-term traders with B grades for Growth and Momentum. 

This broad strength is due to the company’s executing on long-term goals that is showing up through multiple metrics. This includes a healthy balance sheet with low debt and strong liquidity, consistent dividend hikes, durable margins, impressive free cash flow generation, upside due to oncoming new sources of production, 

Conclusion

The K-shaped economy is a challenge for investors, where the rules of the past no longer fully apply. As the Fed grapples with a delicate balancing act, the need for tangible assets becomes more urgent. 

With rates poised to fall, either through monetary policy or real inflation, precious metals are set to continue soaring higher. Gold and silver aren't just a safe haven; they are the ideal vehicle for navigating this new economic reality.

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