The Motley Fool

Other TSX Index Stocks Are Being Left in the Dust

Brexit, a global economic slowdown, and trade uncertainties are all contributing to stronger precious metal prices. It also helps that within Basel III, gold is categorized as a risk-free asset.

Basel III is a set of international banking regulations developed by the Bank for International Settlements to promote stability in the international financial system. This set of tougher rules (compared to its predecessors of Basel I and Basel II) were developed in light of the financial crisis of 2007/2008.

Basel III encourages banks to take lower risks; it suggests that banks maintain a capital ratio of at least 8%. The capital ratio measures a bank’s capital in relation to its risk-weighted assets. Cash and gold are viewed as assets with zero risk.

businessman pointing at graph

One stock that benefits from higher precious metals prices is Wheaton Precious Metals (TSX:WPM)(NYSE:WPM). Back in October, I recommended buying the stock for portfolio protection.

The stock has done more than that. Specifically, Wheaton Precious Metals have appreciated 45%, handily beating the TSX index and Canadian market by about nine times! In fact, it’d be difficult to find another TSX index stock that has done so well since October.

WPM data by YCharts.

How Wheaton precious metals shines through

Wheaton Precious Metals is probably the best silver stock and one of the best precious metals stocks to own. It’s a precious metal streaming company, which means it doesn’t operate any mines. This is a big factor for its high-margin business.

The company pays an up-front cost to its mining partners around the world for future streams in their byproduct silver or gold. For example, typically its partners operate lead, zinc, or copper mines.

The result for investors is a rare opportunity to invest in low-risk Wheaton Precious Metals, which has leverage to increases in silver or gold prices as well as growth via new stream agreements.

Currently, Wheaton Precious Metals has streaming agreements with 19 operating mines. Wheaton Precious Metals enjoys a net margin of about 33%, which sets it apart from industry peers — the industry average net margin is only about 6%.

Investor takeaway

You’d be thrilled to know that despite the run-up of the stock, Wheaton Precious Metals is still miles away from the analyst consensus target. Specifically, Thomson Reuters has a 12-month target of US$29.50 per share on the stock, which represents more than 20% near-term upside.

If you’re worried about Brexit, a global economic slowdown, trade talks, or other uncertainties, you should consider buying Wheaton Precious Metals now and especially so on any pullbacks.

The fabulous company also offers a dividend, which is currently good for a 1.8% yield.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Kay Ng has no position in any of the stocks mentioned. Wheaton is a recommendation of Stock Advisor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.