Wheaton Precious Metals Stock (NYSE:WPM): A “Golden” Response to Fiscal Irresponsibility

Aug 22, 2023

On a surface level, the protective narrative undergirding gold and silver streaming stock Wheaton Precious Metals (NYSE:WPM) (TSE:WPM) appears irrelevant. After many cantankerous discussions about raising the debt ceiling, both Democrats and Republicans came together to ink an agreement. Not surprisingly, WPM stock fell by nearly 2% on Friday as policymakers suspended the nation's borrowing limit until January 2025. Still, the real drama may only be beginning, and drama is generally bullish for precious metals. Therefore, I am bullish on WPM.

At face value, lay observers might believe that the debt ceiling deal averted a major crisis. From a tactical perspective, it did just that. Otherwise, if an agreement did not materialize, the U.S. would face its first-ever default. Several prognosticators explained what that might mean for the economy, with none of the talking points being pleasant. Still, from a longer-term strategic view, little substantively changed. Therefore, WPM stock remains relevant.

Obviously, it's better for Washington to come up with a deal than not. "I just signed into law a bipartisan budget agreement that prevents a first-ever default while reducing the deficit, safeguarding Social Security, Medicare, and Medicaid, and fulfilling our scared obligation to our veterans," remarked President Biden in a tweet.

However, it's the next statement that draws skepticism. "Now, we continue the work of building the strongest economy in the world," the president added.

Significantly, the debt limit suspension prevents default threats from disrupting the nation until after next year's presidential election. However, the threat still exists. Policymakers addressed the symptoms of a pox virus, but they failed to address the virus itself — fiscal irresponsibility. Therefore, the circus will probably come back to town again in January 2025, translating to relevancy for WPM stock.

In other words, Washington simply kicked the can down the road. Neither party seems to want to address the root cause of these debt ceiling debates because doing so will require one or multiple elements of society to hold the bag. Therefore, policymakers will continue kicking the can until they run out of roads. At that point – or at least the anticipation of reaching that point – WPM stock would look mighty attractive.

Without blaming one side or the other, getting the U.S. truly back on track will require harsh sacrifices. It's possible that, as Biden alluded to, military benefits may be sacrosanct (meaning they won't be touched). If so, the nation may need to renege on Social Security benefits. Of course, that would probably spark a massive uproar within the citizenry.

Plus, let's be honest: no political party wants to take ownership of turning its back on veterans or on the elderly. Therefore, Americans gradually absorb the pain through higher taxes and inflation. Whatever the specifics, the dollar continues to erode in real value. As a result, WPM stock enjoys a baseline of support thanks to its underlying gold streaming business.

Unlike other companies involved in the pure-play mining industry, Wheaton instead provides miners with upfront capital. In exchange, Wheaton receives all or a portion of the metals mined at a predetermined price. Such predictability to an asset commanding intrinsic value is especially attractive at this juncture.

Again, whatever decisions Washington has made over the past decades, the end result has been the same — dollar devaluation (i.e. inflation). Thus, WPM stock offers a convenient alternative to holding physical gold bullion.

In fairness, where some of the criticism against WPM stock hits home lies in the financials. For instance, in Wheaton's first quarter of 2023, the company posted total revenue of $214.47 million. That's significantly off the year-ago quarter's tally of $307.24 million.

On an annual basis, Wheaton rang up sales of $1.07 billion in 2022, down nearly 11% from the $1.20 billion delivered in 2021. Understandably, the hawkish monetary policy that was particularly aggressive last year negatively impacted the gold market.

However, Wheaton may get a relevancy reprieve from the latest jobs report. With key employment data coming in hotter than anticipated, this dynamic mainly implies one framework — more dollars chasing after fewer goods, which is inflationary. That should be good news for gold and, by deduction, WPM stock.

True, the Federal Reserve might respond with even more rate hikes. However, such an action might yield economic instability, which may end up favoring gold in the long run as a safe haven. So, the party might just be starting for WPM stock.

Turning to Wall Street, WPM stock has a Moderate Buy consensus rating based on seven Buys, three Holds, and zero Sell ratings. The average WPM stock price target is $53.78, implying 19% upside potential.

Although the recent debt ceiling deal mitigated a crisis now, it failed to address the root cause of the debt accrual, which is fiscal irresponsibility. Further, with the decision to kick the can down the road and the subsequent instability that this action (or lack of action) fosters, WPM stock may be a cynical downwind beneficiary.

Disclosure