Bitcoin has appreciated exponentially lately. It’s four times where it was trading a year ago. At US$32,795, it could be in a bubble. At least, it’s probably not a good time to buy. Though, investors who are bullish on it can still hold what they have as a part of a diversified portfolio.
Historically, when the U.S. dollar falls relative to other currencies, the price of gold tends to rise in U.S. dollar terms. The greenback has weakened against the loonie since March 2020. In contrast, the stock market crashed then and has rallied pretty much since.
On Monday, Bitcoin was down by about 1%, while gold and silver stocks were on the move, despite precious metal prices not moving much. This could be some money flowing back to precious metal stocks as a safe haven.
The SPDR Gold Trust appreciated 2%, while the iShares Silver Trust climbed 3%. Independent precious stocks did much better, though, suggesting that it could pay off handsomely to selectively buy individual gold and silver stocks.
Here are two quality precious metal stocks that have done so much better.
If you’re only going to buy one gold stock, you should consider Franco-Nevada. It enjoys a high net margin of about 22% and no debt, thanks to the nature of its business.
Franco-Nevada doesn’t operate any costly mines. It’s primarily a gold royalty and streaming company with a large and diversified portfolio of assets.
As explained on Franco-Nevada’s website, royalties are ongoing economic interests in the production or future production from a property, while streams are metal purchase agreements that provide, in exchange for an upfront deposit, the right to purchase all or a portion of one or more metals produced from a mine at a preset price.
FNV last reported Q3, during which it generated 92% of revenue from precious metals, of which 74% is gold. It aims to have energy contributing no more than 20% of its revenue. From Q1 to Q3 2020, it saw adjusted EBITDA, a cash flow proxy, growth of 24% due to higher precious metal prices.
Wheaton Precious Metals stock
Wheaton Precious Metals is one of the world’s largest precious metals streaming companies with leverage to increases in precious metal prices as well as growth that can arise from new stream agreements.
It enjoys a high net margin of about 41% and little debt. Currently, Wheaton Precious Metals has streaming agreements with about 20 operating mines. More growth can come from its nine projects that are under development. Its partners are some of the largest miners in the world, including Barrick, Hudbay, and others.
From Q1 to Q3 2020, WPM increased its revenue 27% year over year. Gold contributed to about 60% of its revenue, while silver contributed 35%. During the period, its adjusted earnings per share more than doubled, while its operating cash flow climbed about 50%.
Which top stock is a better buy today?
Notably, the precious metal stocks move in tandem, but Wheaton Precious Metals stock has been more volatile and delivered greater returns in the one-, three-, and five-year periods. Below is the five-year total returns of the two compared to the gold and silver ETFs mentioned earlier on the U.S. exchanges for a fair comparison.
Data by YCharts.
In the last 12 months, FNV and WPM delivered total returns of about 26% and 50%, respectively, on the TSX. Analysts have a 12-month average price target of US$167 on FNV for about 27% near-term upside potential. WPM has a near-term price target of US$60.60 for approximately 34% upside.
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Fool contributor Kay Ng owns shares of Barrick and Wheaton Precious Metals.