I recently explained why Sylvania Platinum could be a terrific stock to buy for March. With coronavirus fears spreading and Brexit-related tension also returning, having exposure to safe-haven assets is a great way of protecting your wealth.
Buying up producers of precious metals is a great way to do this, though I understand why some investors might be minded to stay away from Sylvania, given its recent production problems.
These investors might be happy to wave goodbye to the mining giant’s bulky dividend (close to 8%) and just benefit from rising platinum group metal (PGM) prices instead. And a great way to do this is by buying exchange-traded products (ETFs) that are backed by the physical metal.
Buying Sprott Physical Platinum & Palladium Trust, or the Xtrackers Physical Rhodium ETC are a couple of ways to do this.
Motoring ahead
It’d be a mistake to think PGM-backed investment vehicles are the only great ways to protect yourself in tough times like these. These metals have risen between 100% and 500% in value during the past year, not only on a range of geopolitical and macroeconomic concerns (Brexit, US-Chinese trade wars, flagging eurozone economies). They’ve also boomed because of soaring demand from industrial clients.
More specifically, demand from the automotive sector is ballooning owing to their critical role in catalyst converters. PGMs are built in to reduce emissions and, thanks to growing green legislation (laws that demand more and more loadings of the metals in such components), consumption from the carmakers is growing.
Those aforementioned ETFs (like Sylvania) aren’t just great buys on strong investment and industrial demand though. Supply shortages in the production heartland of South Africa — issues that have certainly bashed Sylvania Platinum of late — threaten to keep PGM prices well supported too. According to Johnson Matthey, platinum supply could fall below 6m ounces for the first time since 2014 this year. It also expects deficits in the rhodium and palladium markets to worsen.
PGMs vs the iron giant
I’d certainly rather buy shares in Sylvania Platinum, or indeed one of those ETFs, than buy into Ferrexpo (LSE: FXPO).
Like the aforementioned PGM producer, this FTSE 250 commodities giant carries a forward yield of around 8%. In fact its 8.3% yield beats Sylvania’s by around half a percentage point. I wouldn’t buy it today though, on long-running fears concerning growing supply in the iron ore market.
The Ukranian miner’s share price has tracked values of the steelmaking ingredient lower in recent sessions. Iron ore has dropped on concerns over how the coronavirus outbreak will smack demand in the immediate term. But I’m also worried about the swathes of new supply scheduled to hit the market in the new decade. A number of new mega-mines are set to start up, and project expansions due for completion all over the globe.
Reflecting these pressures, City analysts expect Ferrexpo’s earnings to drop 44% in 2020 and 25% next year. So forget about that big yield and the company’s low forward P/E multiple of 4.2 times, I think this is a share to avoid at all costs.