Despite a collapse in most commodities, gold and precious metals prices remain elevated and/or have bounced back sharply of late, notes growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.
That's helping all firms in the gold mining group, though our favorites are the high-margin operators that own gold streaming contracts or royalties without the capital expense involved in mining it.
One of those is Franco-Nevada (FNV), whose main business is streaming, providing up-front payments to miners in exchange for the right to buy gold and other resources at a set, low price.
Franco’s extensive portfolio includes some 300 royalties in gold, silver and platinum (two-thirds of its overall assets) and oil/gas projects (one-third).
With financing likely to become harder to come by during the economic downturn, miners will increasingly turn to companies like Franco to provide money to sustain their operations; in exchange for providing assistance, Franco can leverage downturns to grow its portfolio at advantageous prices (as happened in the 2015 commodity slump).
Still, the main reason or the strength today is that business is good and, despite the hit in energy, should get better in the quarters ahead.
In fact, business is already picking up — sales and earnings have ratcheted higher during the past couple of quarters, and while energy will crimp growth a bit this year, analysts still see the bottom line up 20% in 2020 as the firm benefits from higher metals prices, all while maintaining gigantic profit margins (47.8% pre-tax margins last year!). A token dividend (0.8% yield) puts a nice bow on the package.
FNV looked like the leading gold stocks even before the virus hit, though it knocked us out when the stock plunged with the market in March. But shares found big-volume support at the lows, snapped back quickly, and last week, staged a good-volume move to new highs.
It’s now up five weeks in a row, which is a rarity. FNV looks like one of the top two or three leaders in the group, so if you want a stake in precious metals, we’re fine snagging shares here or on weakness.
