Worried About a Market Crash? Hedge Your Portfolio with This Top TSX Stock

Here’s why investors looking for a hedge right now should consider Franco-Nevada Corp. (TSX:FNV)(NYSE:FNV) right now.

| More on:
Watch for the Warning Signs Stock Market Prices Trends 3d Illustration

Image source: Getty Images

In life, I think it’s broadly true that investors get what they pay for. In the case of Franco-Nevada Corp. (TSX:FNV)(NYSE:FNV), this is certainly the case. The stock trades around 100-times earnings, a significant premium to its peers. Certainly, in the gold space, this is the golden child among many investors.

However, I think this stock’s expensive valuation is completely justified right now. Here’s why many investors have piled into Franco-Nevada in recent years, and why I think this is still a smart move.

Weather the storm intelligently, if volatility materializes

Headquartered in Toronto, Franco Nevada is a royalty and resource investment company that essentially introduced the royalty concept more than 30 years ago. I believe when it comes to investing in the gold-mining sector, one simply can’t go wrong with royalties. Apart from minimizing associated mine-specific risks, such investments help to limit significant market-specific fluctuations. Thus, Franco-Nevada shareholders are able to benefit from much more stable cash flows over time.

Although this company doesn’t mine an ounce of gold, it receives payment on approximately 6,000 ounces of the commodity. Contrary to gold-mining companies, Franco Nevada isn’t really a cyclical name in most respects. Accordingly, this is one of the safest stocks in the sector and one that is looked to due to its significantly reduced risk profile

In other words, Franco-Nevada is a prime choice for investors looking to safeguard their portfolios in a severe market downturn type of scenario, relative to gold miners.

Inspiring business model and razor-sharp focus

Franco-Nevada’s business model affords shareholders exposure to the commodity through royalty payment for every ounce produced. This primarily involves silver, gold and various other precious metals. However, it also includes oil and gas in small proportions. This unique business model protects investors from an unexpected increase in operating and capital costs, one of the main negative characteristics of the mining industry.

Further, Franco’s business model provides shareholders with ample options when it comes to future discoveries on any royalty land. This opportunity is available across its portfolio of close to 400 royalties. In fact, Franco enjoys a diversified portfolio based on operator, geography and type of commodity.

This company became public in 2007. Since then, Franco Nevada has consistently outperformed its peers that are engaged in gold mining. Indeed, I am convinced that its superior business model has been instrumental to its success.

Bottom line

Investors who want to hedge their portfolio losses with gold might want to reconsider and choose a gold-focused royalty company, like Franco Nevada. I have no doubt that this leading company with top-notch financials and a unique business model can maximize one’s portfolio returns significantly.

The recent moderate drop in its market value is the third-biggest pullback in this company’s history. Nevertheless, past performance and strong financials clearly indicate a buy-the-dip opportunity.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Friday, February 3

Large-cap corporate earnings will continue to be on TSX investors’ radar today.

Read more »

stock market
Metals and Mining Stocks

Why B2Gold Stock Stands out Among TSX Gold Miner Peers

The yellow metal has gained 18% since mid-October, while B2Gold stock has soared 30%.

Read more »

Engineers walk through a facility.
Metals and Mining Stocks

Why Cameco Stock Rose 22% in January 2023: Should You Buy Now?

Cameco (TSX:CCO) stock may be up right now, but how long can that last if uranium proves to be a…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

2 Canadian Mining Stocks Worth a Dig in February 2023

These two Canadian mining stocks are among the best options for long-term investors looking to add some defensiveness right now.

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, February 1

The Fed’s interest rate decision and other important economic releases may keep TSX index highly volatile today.

Read more »

stock market
Metals and Mining Stocks

Gold Prices Are Rising: 2 Mining Stocks to Buy Today

Gold mining stocks offer a great way to tap into the resilience of this shiny metal in weak markets, but…

Read more »

A miner down a mine shaft
Metals and Mining Stocks

3 Growth Stocks to Buy With $1,000 Right Now

Each of these growth stocks have climbed over 50% in just six months! And there's still room to grow on…

Read more »

A tractor harvests lentils.
Metals and Mining Stocks

Here’s Why Nutrien Stock Is 1 of my Top Stock Picks This Year

Not all food stocks are equally attractive, and if you are in this for the long haul, it's a good…

Read more »