Wheaton Precious Metals: A Perfect Contrarian by Fun Trading

Summary

  • Revenue for the third quarter of 2019 was back on track with $223.6 million, representing a 20.3% increase from Q3 2018 and up 18% sequentially.
  • The company produced 6.095M ounces of silver, 104.175K ounces of gold, and 5.471K ounces of palladium in the third quarter of 2019.
  • The company is a long-term "keeper," as I said continuously for years, and I continue to recommend a long-term approach. However, trading short-term about a third is paramount.

Image: Stillwater palladium and platinum mine in Montana. Courtesy: Mfstandard.com

Investment Thesis

The Vancouver-based Canadian company Wheaton Precious Metals (WPM) ended the first half of 2019 on a triumphant note.

It was a real turnaround for the streamer, and shareholders were delighted with the results supported by a bullish price of gold and silver, which started to rise around June 2019.

ChartData by YCharts
Furthermore, the stock enjoyed a nice reprieve at the end of last year after the favorable settlement regarding the long-standing tax dispute with the Canada Revenue Agency, CRA, which is now auditing Franco-Nevada (FNV).

However, the big rally was short-lived, and as always, exuberance often triggers a period of consolidation. WPM reached about $31 per share in September and since then retreated quickly to $25 where the stock has found reliable support.

The long-term view of Wheaton is still pretty straightforward.

I believe the company is a long-term "keeper," as I said continuously for many quarters, and I continue to recommend a long-term approach when it comes to investing in the streaming and royalties industry. The business model is working well, and the growth potential is evident, stretching to 2023.

Source: WPM Presentation

However, as we have experienced again recently, the company's stock is very volatile and subject to wide fluctuations. Thus, I recommend a dual trading/investing strategy where you keep a core position long-term (2/3) and trade the volatility short term using technical analysis.

Below is the chart comparison for revenues in 2018 between RGLD, FNV, and WPM.

Source: WPM Presentation

Randy Smallwood, the CEO, said in the conference call:

This quarter highlights the strength of Wheaton's business model and our ability to generate strong cash flows, particularly in an environment of rising commodity prices. Throughout the quarter, we saw gold and silver prices increase by an average of 17% over the previous year, while our cash flow and net earnings increased by over 30% and 100%, respectively. Looking forward, we are still currently on track for record annual gold production. However, we have updated our guidance for the year to reflect outperformance at Salobo, and the production interruptions at Peñasquito.

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