Trump-Proof Your Portfolio With This Well-Timed Precious Metals Play
Editors' pick: Originally published May 5, 2016.
It's called "Trump Syndrome," and yes, it's a real thing. Psychiatrists are reporting greater levels of anxiety among their patients because of Donald Trump's political ascendancy.
Whether you support or despise the extravagantly coiffed billionaire, his status as presumptive GOP presidential nominee also is causing consternation on Wall Street and in executive suites.
Exacerbating the uncertainty among investors is a recent spate of weak economic data. A survey released Wednesday by the payroll processor ADP showed U.S. companies had hired employees last month at the slowest pace in three years. This indicator doesn't bode well for the wider employment report scheduled for release Friday from the U.S. Labor Department.
The classic hedge against fear and uncertainty, of course, is gold. But you should consider silver, an underappreciated alternative to gold that in many ways is a more effective hedge against crisis. Unlike gold, silver boasts many vital industrial applications, making it less volatile than the Midas Metal.
As worrying economic trends converge with a particularly coarse and vicious presidential campaign, it's imperative for you to protect your portfolio. Silver is a proven hedge as well as a well-timed growth opportunity.
The price of silver has been on a tear this year and now hovers at $17.28 an ounce. The analyst consensus forecast is that silver could go as high as $18.03 an ounce in May. The iShares Silver Trust ETF, an exchange-traded fund that tracks the price of silver, is up 25% year to date, outperforming the SPDR Gold Shares ETF, a gold-tracking ETF, which is up 20.4% so far in 2016.
The best silver play right now is Silver Wheaton (SLW) , which is scheduled to release first-quarter earnings on Monday, May 9. On average, analysts are expecting adjusted earnings per share of 12 cents, compared with 13 cents in the same quarter last year. For the full year, the projection is for adjusted EPS of 57 cents compared with 53 cents in 2015.
In a season of dismal corporate earnings reports, Silver Wheaton's imminent operating results point to a salient moneymaking investment in a broader market that's expected to be tepid at best in 2016.
The beauty of Vancouver, Canada-based Silver Wheaton is its business model. The company isn't a conventional producer; it's a "silver streaming" firm that doles out an advance payment to silver miners in return for the right to buy a predetermined stake of their future production. As it eventually receives shipments of the metal, the company pays out incremental delivery payments.
This arrangement makes Silver Wheaton a more direct play on silver price trends, without exposure to the physical production of silver, which is riskier.
With a market cap of $8.07 billion, Silver Wheaton is the world's largest precious metals streaming company. The company holds 19 long-term purchase agreements and one early deposit long-term purchase agreement associated with silver and gold.
Silver Wheaton isn't saddled with the fixed operating and capital costs of silver miners; it also avoids exploration risk. What's more, Silver Wheaton's contracts are spread among silver mines in South and North America, which makes the company more diversified than streaming competitors such as Franco-Nevada.
With Silver Wheaton's stock now trading at about $18.80, the median analyst consensus calls for a one-year price target of $22.43, which suggests share can gain an additional 19% in the next year. The highest price target from analysts is $30, implying a gain of nearly 60%. In a turbulent year marked by extraordinary political and economic uncertainty, your money is well invested in the white metal.
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John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.
