Investing in mining stocks provides you with exposure to commodities that they mine. For instance, the performance of gold miners is generally tied to the performance of the yellow metal.
Mining stocks are companies focused on exploring, extracting, and processing deposits of valuable minerals such as gold, silver, copper, and lithium. These metals are essential to the global economy and are used by raw materials across industries and sectors to manufacture products and infrastructure.
As commodity prices are cyclical, it’s crucial to identify companies that have low-cost operations, strong balance sheets, and the ability to weather economic downturns. One such Canadian mining stock to buy and hold forever is Wheaton Precious Metals (TSX:WPM). Valued at $33 billion by market cap, Wheaton sells precious metals in the Americas and Europe. It produces and sells gold, silver, palladium, and cobalt deposits.
Why invest in Wheaton Precious Metals stock?
Wheaton is one of the largest precious metals streaming companies, with a portfolio of long-life, low-cost assets. Its business model offers investors leverage to commodity prices and exploration upside at a lower risk profile compared to traditional mining companies.
Wheaton benefits from higher operating margins compared to peers, allowing it to pay shareholders an annual dividend of $0.85 per share, indicating a forward yield of 1.2%. Moreover, these payouts have risen by 16% annually, which is exceptional for a company in a cyclical sector.
Wheaton Precious Metals has streaming agreements for 18 operating mines and 27 development-stage projects, which should increase future cash flows and dividends.
Around 90% of Wheaton’s current production comes from mines operating in the lowest half of their cost curve. Its defined cost per ounce protects streamers from inflationary cost pressures while the company benefits from mine exploration and expansion activities at no additional cost.
In the last decade, Wheaton Precious Metals stock has returned more than 200% to shareholders after adjusting for dividend reinvestments. Comparatively, the TSX index has returned “just” 100% since June 2014.
Is WPM stock still undervalued?
In the first quarter (Q1) of 2024, Wheaton Precious Metals reported revenue of $297 million, $219 million in operating cash flow, and $164 million in adjusted net earnings. It ended the quarter with $306 million in cash and no debt. However, it has an undrawn $2 billion revolving credit facility after it paid $462 million to mineral stream and royalty interests in the quarter.
Wheaton Precious Metals expects to increase production by 40% in the next five years. Additionally, the mining giant emphasizes that 80% of its expected five-year growth is significantly de-risked and will be derived from assets in operation or in construction.
Analysts covering WPM stock expect its adjusted earnings to grow by 19% annually through 2028. So, it should end 2028 with adjusted earnings of $3.8 per share. If the stock is priced at 30 times forward earnings, it should trade around $115 in the next four years, indicating an upside potential of over 50% from current levels.
Out of the 10 analysts tracking WPM, nine recommend “buy,” and one recommends “hold.” The average 12-month target price for WPM stock is $84.82, which is 16.5% above the current price.
