Opinions
John O'Connell, CFA
Wheaton Precious Metals
WPM-T
DON'T BUY
Sep 06, 2013
Stock price when the opinion was issued
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From a trade perspective, a bit overbought. He's a trader at heart, and buys into dips. If you're a bull, by all means keep holding. But he took some $$ off the table.
Likes both gold and silver here. Gold and silver equities and exposure to them are very undervalued relative to long-term trends; analysts tell him it's likely going to stay that way for a while. The market just doesn't believe that gold and silver prices are going to remain elevated.
Gold is almost like an insurance policy. Good diversifier. Should be a good, long-term hedge. Deposits have become harder to find.
He prefers the business model of the royalty companies like FNV or WPM. As well, they operate counter-cyclically -- give money when gold prices are low and harvest when prices are high. Always looks expensive, but it's expensive for a reason.
This pick is for the person who doesn't currently own anything in the space, or who is a more conservative long-term investor. By far the strongest theme in the market. He believes we're the first year into a multi-year bull market in gold, with pullbacks.
In safe jurisdictions, collecting royalty fees. Great dividend growth. About 60% gold, 40% silver. No debt. Yield is 0.82%.
Investing in gold/silver producing stocks has been a very, very challenging environment. Thinks that a lot of investors have just given up. Have been horrible performers because they have not been able to manage their costs and it has been very difficult to grow production. They are also often operating in politically unstable countries. Royalty plays, like this one, have been the best performing of the poorly performing lot. Generally takes a long time for a stock to recycle its way through with a lot of resistance on the way up. Because of rising interest rates and an anticipated stronger global economy, gold and silver will continue to be problematic investments.