Why This TSX Stock Surged 70% Amid the COVID-19 Crash

While investors kept switching to defensive stocks amid the COVID-19 crash, this top TSX stock surged 70% in just a month.

| More on:
Business success with growing, rising charts and businessman in background

Image source: Getty Images

The coronavirus market crash has not been as bad for some TSX stocks as it was on the broader markets. This top TSX stock has surged from close to $33 levels to its all-time high of $56, and that’s a staggering 70% surge in just about five weeks.

Notably, the TSX Composite Index managed to gain just 5% in the same period. The top Canadian giant that outperformed broader markets by such a wide margin is Wheaton Precious Metals (TSX:WPM)(NYSE:WPM).

Top TSX stock: Wheaton Precious Metals

A $25 billion Wheaton is one of the biggest precious metals streaming companies in the world. However, it differentiates itself from the peer miners in some basic aspects. Wheaton enters agreements with an upfront payment to buy all or some of the precious metals produced from high-quality mines. The additional payment is done upon delivery of the metal.

This unique business model reduces many downsides that traditional miners realize. Due to its upfront payments, the company has no big capital or exploration costs, which generally is one of the largest cost components for miners. Also, this facilitates operating costs visibility.

Wheaton currently has streaming agreements for 20 operating mines and nine development projects. In 2019, the company generated almost 62% of its total revenues from gold and 33% from silver.

Wheaton’s business model differentiates itself from peers

Investors should note that Wheaton’s low-cost, low-risk model facilitated substantially higher profit margins for it in the last few years. It reported a net profit margin close to 30%, while industry leader Barrick Gold’s net margin came in at around low single digits for the same period.

However, top TSX stock Wheaton has underperformed peers in the last 12 months. It has surged almost 90% in the last 12 months, while Barrick Gold and Kinross Gold stocks have managed to grow more than 120% in the same period. Wheaton’s large exposure to silver could be one of the reasons for its relative underperformance.

I believe Wheaton’s indirect exposure to exploration and production minimizes a substantial amount of risk. Additionally, its cash flow visibility is highly comforting for investors. Its high exposure to gold and rallying prices of the yellow metal could keep the upward march going for Wheaton stock.

Concerning valuation

However, amid the positives, one thing that might notably bother investors is the stock’s valuation. Wheaton stock is currently trading at its all-time high close to $56, and thus, the TSX stock looks stretched in terms of valuation.

It’s forward price-to-earnings valuation multiple comes around 65 times, which is exorbitantly high compared to its historical trends. But interestingly, there are almost no gold miner TSX stocks in the markets that are currently trading at a fair valuation after gold’s epic rally this year.

I think Wheaton Precious Metals stands tall among peers due to its low-risk business model. Near-zero interest rates, massive stimulus, and continued uncertainty might push gold prices higher. The bullish outlook for this traditional safe haven could continue to boost TSX stocks like Wheaton. However, conservative investors could go slow and even wait for dips to enter Wheaton stock.

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 Vineet Kulkarni has no position in any of the stocks mentioned.

More on Coronavirus

little girl in pilot costume playing and dreaming of flying over the sky

Air Canada Stock: How High Could it go?

AC stock is up 29% in the last six months alone, so should we expect more great things? Or is…

Read more »

eat food

Goodfood Stock Doubles Within Days: Time to Buy?

Goodfood (TSX:FOOD) stock has surged 125% in the last few weeks, so what happened, and should investors hop back on…

Read more »

stock data
Tech Stocks

If I Could Only Buy 1 Stock Before 2023, This Would Be It

This stock is the one company that really doesn't deserve its ultra-low share price, so I'll definitely pick it up…

Read more »

Aircraft Mechanic checking jet engine of the airplane

Air Canada Stock Fell 5% in November: Is it a Buy Today?

Air Canada (TSX:AC) stock saw remarkable improvements during its last quarter but still dropped 5% with more recession hints. So,…

Read more »

Airport and plane

Is Air Canada Stock a Buy Today?

Airlines are on the rebound. Does Air Canada stock deserve to be on your buy list?

Read more »

A patient takes medicine out of a daily pill box.

Retirees: 2 Healthcare Stocks That Could Help Set You up for Life

Healthcare stocks offer an incredible opportunity for growth for those investors who look to the right stocks, such as these…

Read more »

sad concerned deep in thought

Here’s Why I Just Bought WELL Health Stock

WELL Health stock (TSX:WELL) may be a healthcare stock and a tech stock, but don't let that keep you from…

Read more »

healthcare pharma

WELL Stock: The Safe Stock Investors Can’t Afford to Ignore

WELL stock (TSX:WELL) fell 68% from peak to trough, and yet there's no good reason as to why. So now…

Read more »