3 Reasons To Buy Wheaton Precious Metals
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
This is a huge part of things.
But another huge part of this that few think of is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you achieve your retirement goals.
In recent articles I’ve shown you several stocks to avoid investing in…
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- 2 Reasons To Avoid Lowe’s
- 2 Reasons To Avoid GM
- 2 Reasons To Avoid Nike
- 2 Reasons To Avoid Starbucks
- 1 More Reason To Avoid GE
- 4 Reasons To Avoid Kohl’s
- 1 Reason To Avoid AT&T And Its 7% Dividend
Today, I want to show you 3 Reasons To Buy Wheaton Precious Metals to grow your investment portfolio.
Wheaton Precious Metals (WPM) is a precious metals “streaming” company that has 20 long term agreements with 17 different mining companies.
What is precious metals streaming?
These kinds of stocks don’t own any mines… They buy metals from miners at predetermined prices. And then sell it to another party.
Think of these as silver and gold – and other metals – stocks but without the huge risks of actual mining operations.
This helps them produce much higher and safer profits and cash flows than miners. We’ll talk more about this later.
Wheaton is based in Vancouver British Columbia Canada. It has a $22.2 billion market cap. And it also pays a 0.8% dividend.
This is reason #1 to buy Wheaton Precious Metals to Depression Proof Your Portfolio.
Wheaton’s 0.8% Dividend
Over the last decade Wheaton’s paid out a total of $2.70 per share in dividends.
At today’s share count of 449 million shares that’s equal to $1.2 billion paid out to shareholders in the last decade.
Plus, it also grew its dividend 111% from $0.18 per share in 2010 to $0.38 per share now. This is an annual dividend growth rate of 11.1% per year.
These dividend payments and the growth in them helps you earn cash now if you take the money out. Or allows you to buy more shares over time if you reinvest the dividends.
It can keep growing the dividend because it earns huge profits and cash flows. Which is reason #2 to buy Wheaton to Depression Proof Your Portfolio.
Wheaton Earns Huge Profits
Over the last decade it earned an average operating income margin of 47.5% per year.
I look for anything above 10% on a consistent basis so Wheaton surpasses this number.
Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operating profit margins above 10% over extended periods of time.
This makes Wheaton a great operating business.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its negative 25.1% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.
If companies are consistently above 5% on this number, it makes the company a cash machine that spits out more cash from its operations.
Why am I telling you about this when its so negative? Because its also not the full story.
In the last decade Wheaton had 4 huge negative years when it comes to FCF/Sales margin… 2013, 2015, 2016, and 2018.
Gold hit a previous high of $1,788 per ounce in August 2011. Then prices fell until 2016. And then they stayed stagnant until late 2019 when they began rising again to today’s level of $1,916 per ounce as of this writing.
The same trend happened with silver during this time too…
With streaming companies when precious metals prices rise its good for them… Things are even okay when metal prices are stagnant.
But when prices fall its bad for these companies.
This leads to “lumpy” free cash flow production… But lumpy isn’t necessarily bad. It just means things will bounce around more than other stocks.
Over time though this evens out, and they still earn large profits as you saw above with operating profits.
If you strip out the bad years in terms of its FCF/Sales margin Wheaton earned an average 46.7% FCF/Sales margin in the 6 good years.
These profits also allow it to continually reinvest in operations. And to pay you a large and growing dividend as well… This is especially important to help protect your retirement portfolio in whatever is to come in the next few months or years of this crisis.
Plus, they also allow Wheaton to have low debt which is reason #3 to buy its stock.
Wheaton Has Low Debt
As of this writing its debt to equity ratio is 0.12.
And its total liabilities as a percentage of its balance sheet is only 11.7%.
I look to buy companies that have a debt to equity below 1.
Because the lower debt levels the company has, the lower chance it has of going bankrupt. And this makes it a safer investment.
Due to Wheaton’s continued fantastic operating profits and low expense business model, it has ultra-low debt levels. And these things combined make it an ultra-safe stock.
But what about its valuation? Is it cheap?
Wheaton IS NOT Cheap
With the markets at or near all-time highs you’d expect a fantastic stock like Wheaton Precious Metals to be selling at an enormous valuation.
And unfortunately, it is.
As of this writing its P/E is 62.8.
Its P/CF is 36.8.
And its forward P/E is 33.6.
On all three metrics I look to buy investments below 20 to consider them undervalued.
This shows Wheaton is overvalued by a large amount now.
And this means investing in its stock today gives you no margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning its stock in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Wheaton being overvalued, it makes the investment riskier which is why you should wait to buy its stock until it’s cheaper.
If you’re looking for a solid, safe, stable, dividend paying, cheap, and enormously profitable investment to Depression Proof Your Portfolio – consider investing in Wheaton Precious Metals. But only when it’s cheaper.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.