Which Is the Better Buy: PrairieSky Royalty Ltd. or Osisko Gold Royalties Ltd.?

Buying shares of PrairieSky Royalty Ltd. (TSX:PSK) and Osisko Gold Royalties Ltd. (TSX:OR)(NYSE:OR) allows you to indirectly invest in commodities while taking on a low amount of risk.

| More on:

Royalty stocks are appealing from an investment standpoint since companies receiving royalties are not concerned with day-to-day operations and could present less risk for investors. I’m going to look at two royalty stocks for two different commodities and determine which one could be the better buy today.

PrairieSky Royalty Ltd. (TSX:PSK) has properties ranging from Manitoba to British Columbia, and the company makes money by collecting royalties from oil and gas producers from production that is done on its land.

Osisko Gold Royalties Ltd. (TSX:OR)(NYSE:OR) acquires and manages interests in precious metals around the world, although its focus is on North America. A key source of royalty income for the company comes from its interests in the Canadian Malartic gold mine, which is the largest in Canada and is operated by Agnico Eagle Mines Ltd. and Yamana Gold Inc.

A comparison of commodity prices

Both companies are dependent on commodity prices since that will ultimately drive production and total sales dollars. The price of oil has failed to see any sustained increase this year, and optimism is not high for it to see significant growth anytime soon. Gold has been increasing in price this year, and that ascent could continue, especially if investors flock to the commodity amid the rising global tensions and uncertainty we have seen this year.

Review of financial performance

PrairieSky saw a strong quarter in Q2 as revenues topping $102 million were more than double the $48 million the company collected a year ago. The company was also able to achieve a profit margin of 40%, and that could continue to climb as depreciation costs have kept margins lower, but increasing revenue will mean any excess will flow to the bottom line.

PrairieSky has only been listed on the TSX since 2014, and the company has not seen much growth since then, with revenues of $224 million increasing just 13% over the past two years. However, in just its last three quarters PrairieSky has already eclipsed that total, as it is on its way to a much strong 2017.

Osisko was listed on the TSX around the same time as PrairieSky, and although it recorded just $62 million in revenue this past year, it has more than tripled since the $17 million it posted in its first year. In its most recent quarter, the company saw growth of just 16%, while net income has declined by 30%. However, with profit margins averaging just under 70%, there is lots of potential if the company can continue to grow its top line.

Which stock is the better buy today?

If I had to choose one stock to invest in, it would be Osisko for two reasons.

While oil prices have shown stability and have even increased a little this year, PrairieSky’s stock has only appreciated 1%, while Osisko has been able to generate returns of 24%. I’m not overly optimistic that oil prices will be able to see much of an improvement either, and for that reason, I would choose gold instead.

Another reason I would choose Osisko is for its superior profit margin, which puts the company at less risk should operations slow down.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any stocks mentioned. 

More on Energy Stocks

construction workers talk on the job site
Energy Stocks

Best Stock to Buy Right Now: Baytex vs Suncor?

Suncor and Baytex stocks both look like solid companies offering growth and dividends. But which is the better buy?

Read more »

bulb idea thinking
Energy Stocks

3 Incredibly Cheap Energy Stocks to Buy Now

Energy stocks are trending upwards on the back of several key factors. And these three continue to be top cheap…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Should You Buy Freehold Royalties Stock for its 8% Yield?

Freehold Royalties is a TSX dividend stock that offers shareholders a forward yield of 8%. But is the energy stock…

Read more »

Muscles Drawn On Black board
Energy Stocks

Is Suncor Energy Stock a Good Buy?

Suncor is on a roll in 2024. Are more gains on the way?

Read more »

profit rises over time
Top TSX Stocks

3 Reasons to Buy Enbridge Like There’s No Tomorrow

Have you considered buying Enbridge (TSX:ENB)? Here are 3 reasons to buy Enbridge today for lasting growth and income.

Read more »

oil pump jack under night sky
Energy Stocks

Is CNQ Stock a Buy for its 4.5% Dividend Yield?

CNQ stock is one of the best options out there for dividend growth. But what about value? Let's take a…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Imperial Oil stock is in a precarious position, so what should investors consider as we head nearer to 2025?

Read more »

construction workers talk on the job site
Energy Stocks

Is Suncor Stock a Buy, Sell, or Hold for 2025?

Suncor Energy stock is trading at its decade-high on uncertainty in the oil market. Should you buy, sell, or hold…

Read more »