Buy Low: One of the Best Canadian Stocks to Buy Right Now
Franco-Nevada (TSX: FNV) (NYSE: FNV) is a gold-focused royalty and flow company with one of the largest and most diversified portfolios of cash-generating assets. The company’s business model provides investors with a gold price and an exploration option while limiting exposure to many operating company risks. Franco-Nevada is debt-free and uses the company’s free cash flow to expand Franco-Nevada’s portfolio and pay dividends.
The company does not mine, develop projects, or conduct exploration. Franco-Nevada’s business model is focused on the management and growth of the company’s royalty and flow portfolio. The advantages of this business model are that it provides optional precious metal price exposure with the option of perpetual discovery over large areas of geologically promising land at no additional cost other than the initial investment.
In addition, Franco-Nevada’s business model limits exposure to many risks associated with operating companies. The business is essentially a free cash flow business with limited fundraising and a high margin business that can generate cash throughout the commodity cycle. The company has built a scalable and diverse business in which a large number of assets can be managed with low, stable overheads.
Franco-Nevada is a forward-looking company in which management focuses on growth opportunities rather than operational or development issues. Franco-Nevada’s short-term financial results are primarily related to the price of raw materials and the amount of output from the company’s income-producing asset portfolio. The financial results were also supplemented by acquisitions of new productive assets.
Longer-term results are affected by the availability of exploration and development capital applied by other companies to expand or expand Franco-Nevada’s production assets or to shift advanced and exploration assets from Franco-Nevada in production. Franco-Nevada has a long-term investment perspective and recognizes the cyclical nature of the industry. The company has historically operated by maintaining a strong balance sheet so that it can invest during downturns in the commodity cycle.
Reduced operational risk
An investment in Franco-Nevada stocks should provide investors with a return and exposure to the gold price and the exploration option while limiting exposure to many operating company risks. Since the company’s initial public offering 10 years ago, Franco-Nevada has increased the company’s dividend every year and, as a result, the stock price has outperformed the price of gold and all relevant benchmarks for gold stocks.
Franco-Nevada’s income is generated through various forms of agreements, ranging from net smelter royalties, flows, interest on net profits, net interest on royalties, and other direct interest. The company’s most significant developing mining asset is the Cobre Panama gold and silver stream. Under the company’s agreement with First Quantum, which owns 90% of the project, Franco-Nevada will provide a maximum deposit of $ 1 billion prorated on a 1: 3 ratio of First Quantum’s share in capital costs.
Franco-Nevada’s performance is impacted by fluctuations in the foreign currencies of the Canadian dollar and the Australian dollar against the US dollar. Overall this looks like a great business to own for the long haul.
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The Motley Fool has no position in any of the stocks mentioned. Foolish contributor Nikhil kumar has no position in any of the stocks mentioned.