Top Picks 2020: Franco-Nevada (FNV)

01/16/2020 5:00 am EST

Focus: COMMODITIES

Frank Holmes

CEO and CIO, U.S. Global Investors, Inc.

Since 2008, when it first went public, Franco-Nevada (FNV) has outperformed gold bullion and gold equities, in both bull markets and bear markets, explains Frank Holmes, CEO of US Global Investors and editor of his blog, Frank Talk.

I’m a huge fan of royalty and streaming companies. Investors who like gold as an asset do so because they understand that the yellow metal can limit losses in their equity position and reduce volatility during downturns.

Adding a royalty company such as Franco-Nevada to the mix can be like injecting nitro into your souped-up sports car. 

This is because while Franco-Nevada, the world’s largest streamer with a market cap of $25 billion, enjoys a lot of the upside potential when gold prices are rising, it shares very little of the downside potential with producers and explorers when the metal is in decline.

Franco is better insulated from bear markets because it has a diversity of high-quality active mines in its portfolio, including those in the oilfield.

What’s more, Franco isn’t the company spending money to develop a project. It simply puts up the capital, and in exchange it receives either a royalty on whatever the miner produces or rights to a stream of metal or oil supply at a fixed, lower-than-average cost. It’s a win-win for Franco and the miner, a win-win-win if you also include the investor.

To give you an idea of just how profitable Franco-Nevada is, when you compare its net income per employee to those of blue chip stocks, there’s really no contest.

Some of the world’s most recognizable names — including Apple (AAPL), Facebook (FB) and Goldman Sachs (GS) — are highly profitable, generating around half a million dollars or more per employee after expenses.

And then there’s Franco-Nevada, which makes approximately $3.5 million per employee, or seven times Facebook’s net income. It’s simply in a league of its own.

(Editor's note: Frank Holmes' Top Pick for 2019 was also a royalty streaming company; Wheaton Precious Metals (WPM) was up more than 51% last year and he continues to recommend the stock.)

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