Is Wheaton Stock A Safe Haven In A Tough Market?

Wheaton Precious Metals stock (NYSE:WPM) remains down by about 7% year-to-date and by almost 25% below its April 2022 highs. There are a couple of factors weighing the stock down. Firstly, gold prices have been on the decline in recent months falling around 10% from $2,050 per ounce in mid-March to levels of $1,850 at present, with prices remaining roughly flat year-to-date.  Silver, which is the second biggest driver of Wheaton’s revenue, and palladium, have also corrected a bit.  Moreover, Wheaton’s production has also taken a hit recently, with gold equivalent ounces falling by about 13% year-over-year over the first quarter due to lower output at the Salobo and 777 mines. Wheaton’s revenues and earnings over Q1 2022 also contracted on a year-over-year basis. However, we see a couple of factors that could drive the stock higher in the near term.

The Federal Reserve is hiking interest rates at a more aggressive pace to curb surging inflation, with its most recent 0.75% hike on Wednesday being the largest rate hike since 1994. Higher rates have led to a stronger U.S. dollar and a recovery in yields of treasuries – both considered safe-haven assets –  putting pressure on the price of non-yielding bullion. However, we think that these developments could ultimately bode well for precious metals.  Indicators point to a recession in the United States in the near term, with the yield curve, which is seen as a fairly reliable predictor of economic downturns, inverting. Consumer confidence in the U.S. is also falling, as high inflation puts pressure on household budgets. Geopolitical uncertainties have been growing following Russia’s ongoing invasion of Ukraine. Trefis believes that these factors are likely to propel gold prices higher until global macroeconomic and geopolitical stability is attained.

Considering that about 47% of Wheaton’s sales in Q1 came from gold and 43% from silver, there could be an upside to the stock if investors eventually seek safe havens in the event of a recession. Wheaton’s balance sheet also looks stronger, as it has largely paid down debt over the last few years, with its cash and cash equivalents standing at a healthy $376 million at the end of the last quarter. We estimate Wheaton Precious Metals valuation at $49 per share, which is about 27% ahead of the current market price. See our analysis of Wheaton Precious Metals revenue for more details on the company’s business model and key revenue streams.

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[1] Month-to-date and year-to-date as of 6/21/2022
[2] Cumulative total returns since the end of 2016