Silver Wheaton: A Precious Metals Proxy Poised For Success

Nov. 6.07 | About: Silver Wheaton (SLW)

Silver Wheaton (NYSE:SLW) released their 3rd quarter earnings last week with positive, but I am still waiting for the great report, results. Earnings were $.09 per share, basically flat for the last few quarters. 3.1 million oz. of silver were sold, slightly higher than Q2. Selling rates were about 3.5 million oz. per quarter for the 2nd half of 2006. The company is on pace to sell 13 million oz. for 2007 vs. 13.5 million oz. in 2006.

The stock is up from below $10 in the Spring and $14 a month ago. The PE is an eye-popping 44. These results made me take a closer look at why I have the stock in the 20 Stock Portfolio, and should I continue to own it personally.

Here are the items that I think make this stock a future winner (the returns so far this year haven’t been bad!):

  • The company’s goal is 28 million oz. of silver sold per year. This last quarter they purchased 25% of the silver production from Gold Corp’s new mine at Penasquito, Mexico. This share equals up to 400+ million oz. of proven and probable reserves, measured and indicated resources and inferred silver resources.
  • The company is a pure play on silver prices without digging any holes or spending capital. If silver prices go up so will the stock, if sales grow so will the stock. I think this is a good way to get exposure to precious metals in my portfolio.
  • Management indicated in the conference call that paying dividends are probable in the next 2-5 years. This company is a cash machine with almost no overhead. Starting to pay dividends will return profits to shareholders and probably boost the share price.

I look at this stock as a precious metals proxy and an excellent chance as a big longer term winner. I will strive to add to my position on the share price pull backs that inevitably happen.

SLW is a component of my hypothetical 20 Stock Portfolio.