Silver Wheaton (SLW) is a favorite of the precious metals crowd, as it has been one of the top performing silver stocks since the financial crisis made its presence known in Q4 of 2008. The chart below, from their latest presentation, illustrates.
SLW currently has the highest market capitalization per employee of any U.S.-listed company, which shows the power of its streaming model; the firm is basically a venture capital firm for the silver industry, and thus is able to earn huge profits from investing -- not through the costly process of managing mining operations. Mining royalty stocks like SLW are an outstanding opportunity, as I've noted before; I think they are quite possibly the best opportunity out there today. They tend to require fewer employees and fewer costs, while relying more on networking and an ability to raise capital. As such, royalty companies like SLW are in a position to have some of the best per employee metrics out there.
Now in particular strikes me as a great time to buy SLW. The chart below illustrates the technical analysis picture as I see it; I see a confluence of factors that suggest buyers will be stepping in to push price higher. SLW went from around $22 to over $40 in the first two months of 2012 -- I think a move back to its all-time highs, which would involve an appreciation of around 20%, could easily happen within the next three months based on how this stock has moved in the past.
Moreover, the fundamentals that have driven silver higher over the past 11 years -- monetary debasement and greater industrial demand -- are still at work, and so I think SLW's model is still very viable from a "big picture" perspective.
So SLW has the right business model (royalty streams) in a bullish sector (silver mining) with bullish technical analysis at the current moment -- that alone is a lot to like, and might be justification alone for entering the stock. But there are two other aspects that I believe are especially notable:
1. Dividend Policy. SLW has a policy of linking cash flow to dividends; so the more money that comes into the company, the more money goes out to shareholders in the form of dividends. A similar policy has been utilized by other mining firms, such as Newmont (NEM) and Hecla (HL); I think such a policy is especially astute and will help attract money coming out of the bond market looking for quality stocks yielding solid dividends. From this perspective, SLW's dividend policy is a major plus.
2. New Development Projects. Royalty-focused companies like SLW tend to have their a portion of many mines, and thus offer shareholders a good bit of diversification. SLW drew silver from 16 different mines in 2011, and has at least three more mines coming into production over the next couple years. The chart below, from their presentation, illustrates the anticipated production growth.
This anticipated growth means that SLW will have the opportunity to issue more news releases that could get investors excited. Excited investors translates to a higher share price.
Bottom line: Silver Wheaton has a number of very positive signs for it, and in light of the recent correction that stocks have gone through, I think now is a great time to buy this stock while it is still being ignored by most mainstream investors. A 20% appreciation within three months is what I regard as a fairly conservative near-term target, although I'm in this one for the long-term; I think SLW could easily go 100% from here, and likely much higher if silver goes into triple digits as I expect it to. Silver Wheaton, along with Silvercorp (SVM), are my two favorite silver stocks that I'm most inclined to recommend.
SLW's 2011 year end financials are set to be published on March 22, 2012.