Last week I put a spotlight on gold mining company Agnico Eagle Mines (NYSE:AEM). Savvy investors should also consider cashing in on the red-hot rally in silver now.
Like gold, silver prices are rising on inflation and geopolitical concerns. I know there’s a ton of hardcore silver bugs out there who have been waiting patiently for a big move higher. If this price action continues to play out, then it’s worth looking at Wheaton Precious Metals (NYSE:WPM) as an investment opportunity. The company has a high-quality portfolio of long-life, low-cost assets, and could be on the verge of a breakout.
It’s worth noting that the silver-to-gold ratio, which a lot of traders like to watch, is only just now starting to favor silver. The relationship is meandering around the 2019 levels and is quite a bit away from the peak of 2021.
In other words, if silver moves here, it could catch up in a big way relative to gold. This would in turn lift silver mining stocks.
This ratio is not just a number, but a reflection of silver’s relative affordability and potential for growth, especially considering the expected surge in silver demand to 1.2 billion ounces in 2024.
So, we have a tailwind that favor silver miners. Now when it comes Wheaton, its business model is a blend of leverage to commodity prices and exploration upside but with a lower risk profile compared to traditional mining operations.
Why Wheaton Precious Metals Stock Stands Out
How is this the case? Well, unlike traditional mining companies, Wheaton offers upfront capital to mine developers for the right to purchase a portion of its production at a fixed price. This model significantly reduces risk while providing leverage to commodity prices – it provides optionality which can be a tremendous advantage as silver and gold rise.
This approach has enabled Wheaton to achieve one of the highest cash operating margins in the industry, averaging around 45% currently. Wheaton’s diversified production profile is primarily driven by silver, constituting 55% of revenue, followed by gold at 42%, and minor contributions from palladium and cobalt. This is a solid mix in my view.
This is a strong company that also has some of the world’s most significant mines under its umbrella. Wheaton’s diverse assets also include potential production from projects not yet in guidance. And the more both silver and gold run, the more upside potential there exists for these projects. Management is active in this regard, having secured agreements for eight development assets, promising a 40% growth profile over five years.
Bottom line? I like Wheaton Precious Metals stock here. The chart could be on the verge of a multi-year breakout, silver prices are only just now starting to run, and this is a company that stands to benefit in a big way from continued precious metal momentum.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
