Royal Gold Strikes It Rich With Shrewd Bets

The company has minimal debt, reflected by a debt-to-equity ratio of 0.04. Its cash position is strong as demonstrated by its 3.57 quick ratio, a measure of its cash reserves.

While Royal Gold is a small-cap stock with a limited portfolio of investments, its success in selecting properties is clear. Revenue, free cash flow and earnings have grown at an average annual compounded rate of 34%, 38% and 31%, respectively, over a five-year period.

Royal Gold is positioned to buy more royalties in the coming quarters, which could boost its earnings. Last year, the company bought three royalties from AngloGold Ashante (AU Quote) and Barrick Gold's (ABX Quote) 77-royalty investment portfolio. The company purchased royalty investor Battle Mountain Gold Exploration in 2007.

Still, it isn't all positive news at Royal Gold. The company has sizable exposure to copper, which is an industrial metal that could depreciate this year if the housing and manufacturing industries continue to sputter. Demand for copper in China, which consumes 80% of the world's supply, is declining.

Institutional investors own 62% of Royal Gold's shares. The company has a beta of 0.54 and daily trading volume of 800,000 shares. While it's not a value stock, it's a sound company that offers the opportunity to gain from the rise in the prices of precious metals.

In my last article, I pitched four recession-resistant stocks that are likely to beat the market in 2009. They were Green Mountain Coffee Roasters (GMCR Quote), generic foodmaker Ralcorp ( RAH Quote), denim retailer The Buckle ( BKE Quote) and Marvel ( MVL Quote), the film studio. I'm adding Royal Gold to the list.