Billionaire investors like Jacob Rothschild, David Einhorn, and Ray Dalio are buying gold because they are concerned that President Donald Trump will upend the stock market. But what if they are wrong and the Trump presidency is a success? In that case, you might want to look at diversified and high margin precious metals players Royal Gold, Inc (RGLD 0.15%), Wheaton Precious Metals (NYSE: WPM), and Franco-Nevada Corp (FNV -0.60%).

Not your typical gold stocks

The first thing you need to understand about this trio of gold stocks is that they aren't miners. Royal Gold, Wheaton Precious Metals, and Franco-Nevada are streaming and royalty companies. It's a big difference.

Man holding gold ingot

Image Source: Getty Images

A streaming company provides a lump sum of cash to a miner and in return gets the right to buy gold and silver in the future at reduced rates. For example, Wheaton Precious Metals pays around $4 an ounce for silver and $400 an ounce for gold -- both way below the current spot prices for either metal.

Miners like these deals because it gives them access to cash that they can use to strengthen their balance sheets or invest in growth and expansion projects. That's particularly valuable when going to the capital markets or a bank isn't a desirable option.

Portfolio theory

But why go with a streaming company over a miner in a positive Trump presidency scenario? One of the big reasons is diversification. While miners often have just a few large mines going at any one time, Wheaton has investments in 29 projects, 21 that are currently operating and eight that are in some phase of development. Royal Gold has investments in 38 producing properties, 24 development projects, and 130 evaluation and exploration stage properties. Franco-Nevada has 46 producing mines, 41 development projects, and 172 exploration investments. (Franco-Nevada also has 80 investment in oil and gas projects.) Basically, these companies are picking and choosing the mines in which they want to invest and have a lot of different properties working for them at any given time.

In fact, it's probably best to view this trio as a portfolio of precious metals investments. And because they provide cash up front with no further commitments, these companies tend to have very wide margins in addition to their highly diversified gold mine portfolios. To give you an idea of what that means, Royal Gold had a gross margin of around 80% over the trailing 12 months through May compared to senior miners, like Barrick Gold (GOLD -2.36%) and Newmont Mining (NEM -1.28%), that on average came in at half that level.

WPM EBITDA Margin (TTM) Chart

WPM EBITDA Margin (TTM) data by YCharts

But here's a more telling stat, when weak precious metals prices pushed EBITDA margins at Barrick and Newmont into negative territory, Royal Gold, Wheaton, and Franco-Nevada's EBITDA margins remained solidly in positive territory. In other words, they have a lot more leeway to deal with weak precious metals prices than miners do. If Trump engineers a growing U.S. economy, gold could lose its luster pretty quickly and that would be bad news for gold stocks -- but less bad for this trio of streaming companies.

Growth, built in

Another big thing to remember here is all of the growth that's built into their portfolios. Each company has development and exploration projects in the mix, in some cases hundreds of them. But because of the business model, Royal Gold, Wheaton, and Franco-Nevada generally don't face any more costs for these projects (some investments are spread over time based on development goals). So, as Royal Gold likes to say, the production from these development projects is "bought and paid for."

Wheaton's example of how streaming works.

How streaming works. Image Source: Wheaton Precious Metals

Even if gold prices were to fall, the streaming companies wouldn't have to worry about cutting costs and finding ways to fund future projects. Moreover, the best streaming deals are often inked when miners are facing troubling financial times. That's exactly what happened during the commodity downturn that started in 2011. So weak gold prices could actually lead to even more growth at Royal Gold, Wheaton, and Franco-Nevada.

Good for all seasons?

The truth is that Royal Gold, Wheaton, and Franco-Nevada are well positioned for good and bad gold market. So if Trump blows up the economy and gold rockets, like some very smart investors think might happen, they should do well. And if Trump succeeds and gold stagnates or falls, they should do well, too. Fat margins and built in growth pretty provide a great backstop for success either way.

Streaming is a robust business model and one that every precious metals investor should examine very closely. Royal Gold, Wheaton, and Franco-Nevada are three of the leading names in the space. Each is worth a deep dive no matter what you think will come of the Trump presidency.