Frank Holmes: Royalty Companies Have Outperformed and Will Continue to Shine
There has been a perfect bottom pattern in the price of gold and the metal is now likely to increase by 70%, while gold stocks will likely increase 2 -3 times more than the underlying commodity.
Royalty company Franco Nevada’s share price has doubled in the bear market, evidence that the royalty model is a superior business in rough markets. Also of interest to Frank as select mid-tier companies with high grades that are being targeted for acquisition and are currently well undervalued.
Frank Holmes suggests that to evaluate a company for investment it is important to look at revenue per employee. Newmont is around $330,000 while Franco Nevada is around $15 million per employee.
Outside of the precious metals and mining sector, negative interest rates indicate a decline in the profit cycle in general equities, but no major crash is likely. The airline sector has performed well and the JETS ETF takes advantage of the growing cash cow of the air transport industry, coupled with the low price of oil. Another example of a cash cow company is Microsoft.
Talking points from this week’s video:
• What is 2016 going to look like for gold?
• Who has the highest cash flow return on their capital?
• Love trade and fear trade in gold
• Gold has definitely hit bottom and is now on the way up!
Frank Holmes is the CEO and chief investment officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of The Goldwatcher: Demystifying Gold Investing. More than 30,000 subscribers follow his weekly commentary in the award-winning Investor Alert newsletter which is read in over 180 countries.