Investors Looking for Exposure to Precious Metals Will Want to Pick Up This Streaming Company on the Dip

Investors seeking exposure to precious metals have long admired Wheaton Precious Metals Corp (TSX:WPM)(NYSE:WPM) for its unique, low-risk business model. Find out why you might want to pick up this stock trading near its 52-week lows.

| More on:
The Motley Fool

Shares in Wheaton Precious Metals (TSX:WPM)(NYSE:WPM) are down close to 18% so far to start 2018 and have fallen 23% since the first week of July.

However, the tide has been turning of late for the world’s largest pure streaming company, with those shares gaining 11.4% since September 11, including a 3.5% gain in Thursday’s trading session.

With momentum beginning to reverse course, is WPM stock a buy for investors looking to take advantage of the company’s unique business model?

Wheaton Precious Metals, which previously went by the name of Silver Wheaton, operates a unique business model that it claims is solely designed to maximize value for the company’s shareholders.

In essence, Wheaton gives cash up front to various metals and mining companies in return for a claim on the silver and gold by-product those mines produce.

In theory, it’s a win-win for both parties, as the mining companies that Wheaton does business with aren’t particularly interested in getting involved in the production and marketing of precious metals; meanwhile, the management team at Wheaton conversely holds a fairly aggressive bullish outlook on the long-term price for silver and, more recently, gold.

The added benefit to Wheaton’s shareholders then is that beyond the initial upfront payment, they aren’t responsible for maintaining ongoing capital expenditures.

Not only does that aspect devoid Wheaton of being on the hook to foot the bill for expensive high-risk growth projects, but it also means that if conditions at the mine suddenly deteriorate to the point where continuing to operate the mine is no longer economically viable, Wheaton isn’t liable for the opportunity cost of sitting idle on billions’ worth of assets.

Instead, it’s free to deploy its capital towards more promising ventures or even return cash to shareholders by way of dividends or share buybacks.

Wheaton Precious Metals is a proxy play on silver and gold prices

Wheaton has been designed to appeal to a certain segment of investors who want direct exposure to silver and gold prices without the overhang of taking on any operating risk.

A stake in Wheaton additionally provides investors with the added benefit of financial leverage in that shares in Wheaton should outpace the spot price of silver thanks to the company’s creative business model; at the same time, it does not carry with it the extreme levels of leverage that make futures contracts in silver and gold unsuitable for many investors.

Bottom line

Precious metals have tended to perform the best when markets are in a time of crisis, like during the 2008-09 financial crisis, when investors begin to doubt the credibility of financial markets.

If you are one of those who believes every investor ought to allocate at least a certain portion of their portfolio towards an investment in “real assets,” because of its cost-efficient and low-risk business model, an investment in Wheaton is arguably as good as any other out there.

Investors looking to add to their long-term holdings in the precious metals sector may be wise to pick up WPM shares on their latest spell of weakness.

Stay smart. Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jason Phillips has no position in any of the stocks mentioned. Wheaton Precious Metals is a recommendation of Stock Advisor Canada.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »