Wednesday, March 28, 2018

Recent Buy – FNV

A quick update about a purchase in my portfolio last week. As I’ve outlined in the monthly Outlook posts, there are a few opportunities that are still undervalued. While it may come as no surprise, regular readers will observe that I am still very bullish and overweight in commodities and precious metals. While this is a sector that I have been thinking of trimming possibly since it has grown to an outsized position, I cant help but add some shares in high quality companies when I get the opportunity.
Last week, after a slight miss in earnings, I managed to pick up a 50 shares in Franco Nevada Corp (FNV.TO) at C$87.00. The company pays an annual dividend of US$0.92, which adds US$46  to my annual income stream (a div increase is expected next quarter).

Recent Buy Decision

  • Commodities are still very undervalued compared to rest of the financial assets. In fact, commodities have never been relatively cheaper as the following chart shows.
  • The business cycle is at an inflection point, with inflation about to kick in — which is expected to send the commodity market wild in the coming month.
  • Gold/silver are still beaten and hated market by many. While gold itself has risen a bit in 2018, gold stocks have lagged. A turn in tide and influx of liquidity should show a nice appreciation in share prices over the coming years.
  • Quality: For folks who aren’t familiar, Franco Nevada is a royalty and streaming company focusing on gold, silver and now oil & gas markets. This is regarded as possibly the best streaming company in the sector. The shares are almost never trading at too cheap a price, so whenever I see investors sentiment get the better of them, I am happy to take the other side of the trade. The earnings miss last week sent the shares down ~5%. For a long term investor, this was a perfect opportunity for me to add to my position.
  • FNV thinks really long term and looks at hated assets to buy. Over the last few years, when gold and silver went through the bear market, they were buying assets hand over fist. More recently, when the oil market crashed in 2015-2016, FNV was busy buying O&G assets. The deals at FNV are so good, that management literally has to do nothing and will be a cash cow + growing dividend payer for the next 30 years. That kind of certainty is hard to find anywhere in the market.
  •  Baby R2R – Over the last few months Ive been contemplating diversifying Baby R2R’s Nest Egg portfolio. The two other stocks I hold for her are both in the financial/asset management sector (Bank of Montreal (BMO.TO) and Brookfield Asset Management (BAM.A.TO)). So, something commodity focused and long term stability like FNV makes sense to me. I am going to earmark 15 shares from this 50 share purchase for Baby R2R.
What do you think of this purchase? Do you have an opinion on current valuation of FNV? Share your thoughts below.
Full Disclosure: Long all stocks mentioned. Our full list of holdings is available here.

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