Felony Gold?

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Is gold like Bitcoin?  Yes, if Bitcoin were physical, and solid gold, and could find a bottom. But it’s not, and isn’t, and hasn’t.

Going

ga ga over gold hasn’t paid off for decades. This precious metal’s spot price has been planted in cement. Can it be played from the side? Vancouver-based Wheaton Precious Metals lives on the hope. Should you?

Smart people will assure you that gold is a “safe haven.” “Gold’s gold.”
Any and everyday many people will confirm that a cataclysm is coming. Economic breakdown hunkers just past the next price-action crack. Maybe.

Gold’s allure seems eternally magical. Exposure to the commodity can be direct, through ETFs, or derivative. Wheaton employs a business model that leaves mining risk to others. How is that working now? And how can any model outperform when the underlying commodity price has been locked beneath permafrost? STOCKjAW takes a closer look.

 

Hearts

flutter when gold is mentioned.  Some feel it deep in their fuzzy-wazzies, they say.  Who doesn’t love gold’s barbell action relative to equities or a dollar, when that dollar’s weakening?  Buy it direct and stick it in you bank.  Buy the GLD and hold it in your retirement account.  Or, there’s Wheaton Precious Metals.

 

Wheaton Precious Metals business model leaves the mining risk to others.  Reducing risk is good.  Smart business models lead to performance.  WPM is a gold/silver streaming company engaged in long-term purchase agreements with miners.  Who doesn’t want gold exposure now?

 

Wheaton Precious Metals(WPM), 12-9-18.
Chart, WPM, 12-9-18
All gold exposure is not created equal. Wheaton Precious Metals displays this fact. Price action is not “winning” when all four exponential moving averages are flipped upside-down, and descending. Yet Investing.com suggests the technicals signal “Strong Buy”(SJChart.)

 

On November 14, WPM reported a Q3 miss of 21.6%, an $0.8 non-GAAP EPS on a $0.10 consensus estimate.  This is a company now sporting an annualized 5-year revenue growth rate of -0.1%.  That’s negative growth, at a time when markets are chaotic.  WPM also posted an annualized 5-year cash flow growth rate of -14.1%.  In our eyes these are tough numbers.

 

Back on March 31, this year, WPM posted a Q4 EPS beat of 19%.  Q1 followed the uptrend with a 5.26% beat, and Q2 posing a 17.1% upside surprise with EPS of $0.16 versus consensus of $0.13.  And then came Q3 on November 14.  WPM submarined, a 21.6% miss, $0.08 vs. $0.10.

 

Wheaton is subject to inconsistent returns.  It is neither a growth or defensive stock.  A 2.18% dividend is not downside protection.  More investors than not share a distaste for unpredictable returns, amid volatile markets.  Double that when times get very tough.  Increasingly, we believe that may be now.

 

Wheaton Precious Metals(WPM), 12-9-18.
Chart, WPM, overlay
$SPX(mountain), WPM(light blue overlay). Failing to outperform your benchmark spells under performance. Risk without reward is not investing.

 

YTD Wheaton is down -25.2%.  Over three years it’s gained 24.3%, and over five it’s down -18.7%.  It sports a peg ratio of 9.07.  A peg ratio of 2 is considered “expensive.”  The dividend yield currently runs at 2.18%.  For us, returns like this are labeled “no future.”

 

WPM inhabits the “Materials” sector, “Metals and Mining” industry, and the “Silver” sub-industry.  Their forward P/E of 43.9, and a feeble “Return of equity” of 5.5%.  Over the past year WPM has grown EPS by 36.4%, and the dividend by 57.1%.  These results beat another player in the space, Sibanye Gold(SBGL), a company forced to completely cut it’s dividend.

 

Wheaton Precious Metals faces a slowish future,with long-term estimates pegged at 5.1%.  Peter Lynch, the once-king of the ultra-famous “Magellan Fund” calls that “slow growth.”

 

Graphic, Too slow
Wheaton Precious Metals depends on market prices for all it’s metals, including gold. Waiting on gold has proved unprofitable for the last 20 years. Regardless of gold’s reputation as a store of value, WPM seems a tough way to play it.

 

Slow growth is not difficult to find in this or any other market.  We respect Investing.com’s technical take. Further analysis suggests WPM is rallying within a longer term bear trend.  We see that.  Active buying has pushed the 14 period stochastic oscillator into a strongly bullish yet “overbought” status.

 

Stocks often remain in overbought status for quite some time, yet this reading often results in trend reversals.  Meanwhile, the On Balance Volume(OBV), a volume-based directional indicator, is bearish.  And the four steeply descending EMAs?  Not good anyway you slice it.

 

    Gold’s future remains opaquely unplayable.  Stocks are not stores of wealth.  Owning gold as a hedge against currency devaluation seems sensible.  Owning gold or it’s derivative plays as an appreciating asset, has proved painful for years.

 

WPM’s price performance, current price-action, and relatively weak fundamentals, make Wheaton a pass.  We would wait for chart visuals.  We would like to see the “Buy” signals in ascending EMAs restored to upright–and ascending, along with trending price-action. Otherwise, it just feels like gambling.  But you decide.  See…

 

Felony Gold

https://stockjaw.com/2018/12/09/felony-gold/

 

Investing.com technicals WPM.

https://www.investing.com/equities/silver-wheaton-corp-technical

 

Thanks for Reading.

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Additional resources:

Investopedia.com.  Seriously Wonderful.  Fact.
http://www.investopedia.com/
Charles Schwab.  In Our Opinion, the best broker going.
https://www.schwab.com/public/schwab/client_home
STOCKJAW.COM EARNESTLY THANKS YOU FOR YOUR INTEREST AND WISHES YOU THE VERY BEST.  THE WORLD BEING WHAT IT IS, WE MUST POST THE FOLLOWING:  ALL CONTENT ON STOCKJAW.COM IS PURELY FOR GENERAL EDUCATIONAL AND ENTERTAINMENT PURPOSES ALONE.  ANY ACTION TAKEN BY ANY READER IS THE SOLE CHOICE AND RESPONSIBILITY OF SAID ACTOR.
Be careful.  Do the work.  Have patience, with yourself.  Never put your dreams away.

 

STOCKjAW

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3 thoughts on “Felony Gold?

  1. Thank you for doing the research on WPM. Personally I did quite well with Silver Wheaton back in 2009 to 2011. (now WPM) WPM tends to do best in a bear market when most stocks are dropping like a rock and the dollar is loosing value. I’m thinking WPM will do well in this current trend down. WPM also gets more interest and increases in value as the dollar weakens. I admit I am a believer in gold and WPM, given my investment in the no so distant past. From the last bull market for the next couple of years, WPM was a can’t loose investment. Then in 2011 it crashed hard. The tough part is knowing when to get out. When the price of gold fell from it’s 2011 high of 1700 dollars an ounce to below 1200 an ounce just this summer, WPM has been a looser. However if you think that we are facing tough time on the street, then I personally think this is a good entry point. Had I got in at the recent bottom, I would already be up 10%. That’s not bad when the market seams to be in a crash mode. i have made ,and lost, a lot of money with Silver Wheaton And if I had got out at 1600 or so, I would be a wealthy man today. Kudos to your research. I think we can agree to disagree on this one. I’m getting in in 24 hours. We will see.

    Liked by 1 person

    1. Thanks for the perspective. We feel sick having missed Wheaton’s massive move beginning in ’09. However, life has proved very difficult for WPM ever since. The stock is behaving very differently now. In our view, shares display no direction. Few stocks are performing well in these increasingly hard market conditions. The ones who are doing well, sport very different charts, with ascending EMAs and positive price-action. We see no need to seek out issues trading far below their own history. Thanks for the sharp, decisive feedback. STOCKjAW.

      Like

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