This asset manager saw its revenues increase 90%, to $28.3 million in the latest quarter. Net income rose $8.9 million, to $10.5 million. The company has a current annual dividend of 2.24%, paid quarterly.
Sprott Inc. (SII)
From Ian Wyatt’s Million Dollar Portfolio
Baron Rothschild, known as the father of contrarian investing, famously said, “The time to buy is when there is blood in the streets.” Rothschild was talking about war, but this pandemic isn’t much different. Instead of fighting the Napoleonic Wars, we’re fighting a virus.
And the virus is doing real damage.
Yesterday the Commerce Department released its initial estimate of second-quarter GDP, and it wasn’t pretty. The U.S. economy contracted at a 32.9% annualized rate, the worst drop since the government started keeping records. The Eurozone saw its GDP fall by 40%, again, the biggest drop in the bloc’s history.
That’s not really surprising, considering that the U.S. and most of Europe was in lockdown for most of the quarter. It’s tough to generate much commerce when you aren’t supposed to leave your house. Factories weren’t running, shops were closed, people were out of work, the economy basically ground to a halt.
Understandably, that shutdown cut the demand for raw materials to virtually nil. Since this pandemic began, the price of almost every commodity under the sun has plunged, with the notable exceptions of gold and silver. Precious metals have recently hit yet another all-time high as investors up their stakes in safe haven investments.
I understand the flight to safety, given the impact the pandemic has had on the economy. I would, like Baron Rothschild, argue that now is the time to be buying most natural resources.
There’s another old saying that correlates with the Baron’s position.
“The cure for low oil prices is low oil prices.”
That’s true for most resources. When they’re cheap, we use more of them. And resources are definitely cheap at the moment.
That’s why I’m adding more resource exposure to the portfolio.
No, I do not have a crystal ball that tells precisely when this pandemic will end. What I do know is that there are several promising vaccine candidates in the works, there’s a major election coming up and, while this might be a bit of confirmation bias, pandemics have always ended.
Based on those assumptions, now’s the time to be buying.
That’s why I’ll be buying Sprott.
Sprott is the largest natural resource asset manager in the world, but it doesn’t actually produce anything.
It manages physical gold and silver funds which are available to investors around the world, allowing them to buy ownership interests in stockpiles of actual precious metals. It also acts as venture capital, pooling investor money to make loans to miners who actually produce the precious metals. Basically, it’s the perfect middleman.
Sprott is the investment arm of Canadian billionaire Eric Sprott, who made his fortune in the resources industry. His not intimately involved with running the asset manager anymore, serving as chairman emeritus, but he has imbued the investment team there with his knowledge and philosophy.
That’s played out well, both for the company and its investors.
There’s nothing terribly sexy about what Sprott does.
It runs bullion trusts and other investment funds and gets paid management fees. Right now, it has nearly $11 billion in assets under management and made nearly $100 million for running them. It also collects what amounts to interest on the loans its makes, typically approaching 20%, and it is working toward having a portfolio worth nearly $1 billion worth of loans—secured by mines with ore in the ground—by the end of this year.
That makes a lot of sense, since Sprott is basically making the same calculation I am.
Folks are understandably running into gold and silver, and Sprott has the expertise and resources to profit from that, without taking on the risk of actually digging it up itself.
Sprott’s management also understand that commodity demand will, sooner rather than later, recover. Now’s the time to buy.
That’s especially true since it essentially acts as a toll collector, getting paid a percentage of assets under management.
Sprott is a low-risk way to gain exposure to precious metals and other resources.
Recommended Action: Buy Sprott.
Ian Wyatt & Ben Shepherd, Ian Wyatt’s Million Dollar Portfolio, wyattresearch.com, July 31, 2020