Regardless of where one stands politically, it's reasonable for people on both sides of the aisle to recognize that the election of Donald Trump was the culmination of two of the most controversial presidential campaigns in recent history. And less than six months into Trump's presidency, there seems to be little evidence that the controversies will soon end.
The market, in the meantime, seems to have hardly noticed. The S&P 500 has risen almost 7% since Trump moved into the Oval Office. There's certainly no guarantee, however, that the market will continue to rise throughout his term. Many gold stocks, consequently, will probably endure significant volatility; however, Franco-Nevada (FNV 0.98%), Royal Gold (RGLD -1.09%), and the SPDR Gold Trust ETF (GLD 0.34%) are all well suited to endure the potential rocky road ahead.
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Prospering from the gold while not drowning in the red
At $12.6 billion, Franco-Nevada is the largest royalty and streaming company by market cap. Extending beyond gold -- which accounted for 70% of revenue in fiscal 2016 -- Franco-Nevada's well-diversified portfolio of 339 total assets includes silver, platinum, palladium, copper, nickel, uranium, iron ore, oil, and gas, mitigating the risk of a sharp downturn in the gold market.
The company's financial fortitude suggests it remains well prepared to withstand the turbulence of a Trump presidency. In its most recent quarterly report, for example, it reported zero debt and $283 million in cash on its balance sheet. In terms of liquidity, the company is in excellent shape. According to Morningstar, Franco-Nevada currently has a quick ratio of 11.04, suggesting it has sufficient liquidity to service its short-term obligations should there be a rapid drop in the price of gold. Another of its strengths is found in its ability to generate cash. Over the past three years, Franco-Nevada has, on average, converted 64% of its revenue into free cash flow.
An opportunity fit for kings and queens
Royal Gold is another royalty and streaming company which is prepared to weather any oncoming storms. Unlike Franco-Nevada, Royal Gold's portfolio of 139 total assets is not as diversified, while its exposure to gold is much greater. In fiscal 2016, Royal Gold reported that gold accounted for 85% of sales. The company's partners with whom it has royalty and streaming agreements, however, represent many gold-mining leaders including Barrick Gold (GOLD 1.68%), Newmont Mining Corp. (NEM -0.03%), Yamana Gold (AUY), and Goldcorp (GG).
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This mitigates Royal Gold's risk, for even if one or two of these companies suffer from a tumultuous Trump presidency, it's unlikely that it would adversely affect Royal Gold too much. The strength of its portfolio is also illustrated by the fact that Royal Gold has already paid for many of its new projects, including projects that have recently begun, such as Andacollo and Pueblo Viejo, and operations that are scheduled to commence in the next few years -- Rainy River, Cortez Crossroads, and the Penasquito Leach project.
Second, a look at Royal Gold's financials suggests the company is in good shape. Like Franco-Nevada, Royal Gold, with a quick ratio of 5.12, seems sufficiently liquid to survive a quick downturn in the gold market. But unlike Franco-Nevada, Royal Gold carries debt on its balance sheet. With a net debt-to-EBITDA ratio of approximately 1.92, however, the company's leverage doesn't raise any red flags.
A purely golden alternative
Although it's not a stock per se, the SPDR Gold Trust ETF trades like a stock, and it gives more risk-averse investors another option. Instead of holding individual gold-oriented companies like other ETFs, the SPDR Gold Trust's holdings include physical gold and, occasionally, cash. Its stated objective, in fact, is to track the price of gold.
Trump's presidency may entail the slings and arrows of outrageous fortune, but you can be fairly certain that he doesn't do anything that irrevocably impairs gold's ability to rise over the long term.
Although the financial crisis isn't exactly analogous to the potential storms ahead, one can see that, unlike gold, many gold-mining companies have failed to recover over the past 10 years. And looking even farther back, the value humanity has placed on gold has survived thousands of years. Presumably, Trump won't do anything so egregious to reverse that trend. For those who agree, this gold ETF presents an excellent option.
Investor takeaway
Of course, there's no way to portend what the future holds over the next three and a half years -- or even seven and a half years. Adequate liquidity and strong balance sheets indicate that Franco-Nevada and Royal Gold are well suited to withstand future volatility, though. Similarly, the SPDR Gold Trust ETF, which doesn't bear the risks associated with individual companies, also seems as if it will be impervious to any future volatility, providing more conservative investors an excellent opportunity to maintain a position in gold.
