Adding Silver Wheaton (NYSE:SLW) to your portfolio could be a great way to establish a long-term defensive position for building wealth against the instability of currency fluctuations and macroeconomic conditions worldwide. Silver Wheaton is currently one of the best performing stocks in the commodity sector due to its diverse portfolio and lack of exposure to production costs. Silver Wheaton is currently having a record year, backed by strong financial metrics and returns.
Silver production is increasing among silver miners as there are indications that demand and volatile prices may increase in the near future behind the growth in mobile and solar products, offsetting the decline in demand from film-based photos. Silver Wheaton saw promising progression from multiple assets this year, while other developments show great potential for strong growth in the short-term. Silver Wheaton also announced new streaming agreements that will strengthen its portfolio in the short and long-term while supporting its core values of low-cost, high-return assets.
Silver Wheaton is most comparable to other silver mining firms such as First Majestic (NYSE:AG) and Coeur d'Alene Mines (NYSE:CDE). Silver Wheaton is also comparable to Barrick (NYSE:ABX) and Goldcorp (NYSE:GG), as it has significant stakes in the silver production from these firms' key operations. Barrick Gold has the lowest price-to-earnings ratio of around 9.4. Silver Wheaton's price-to-earnings ratio is around 21.6, while First Majestic is around 22 times earnings. Goldcorp is around 26 times earnings, and Coeur d'Alene Mines is the highest at around 29.4 times earnings.
Barrick also has the lowest beta score closer to 0.5. Goldcorp's beta score is slightly higher, while all three silver mining firms have beta scores closer to 1.5. Barrick has the highest average daily volume at around 9 billion shares, while Silver Wheaton is around 4.9 billion shares. Silver Wheaton's annual dividend is around $0.40, while Barrick is around $0.80 and Goldcorp's is around $0.54 per year. Barrick has the highest EPS of around $4.1, while Silver Wheaton and Goldcorp's EPS are around $1.60 and the silver mining firms' EPS are under $1.
Silver Wheaton has the highest EPS growth of around 250% this year. Coeur d'Alene Mines' EPS growth for this year has also exceeded 200%. Silver Wheaton has the highest current ratio gross margin (78%), operating margin (74.9%), return on equity (21%) and net margin (73%) due to its lack of exposure to overhead expenses. Sliver Wheaton stock has also been the highest performer YTD through September, increasing around 13%; it's also the closest to surpassing its 52-week high. Silver Wheaton's stock has increased by around 11.9% since its last earnings release.
According to the recent earnings release, Silver Wheaton had record levels of revenue, sales and operating cash flows for the quarter and first half of the year. Revenue in second quarter of 2012 was $201.4 million, increasing 3%, YOY; revenue in the first half was $401 million, increasing 14% YOY. Net earnings in the second quarter were $141.4 million while it was $288.6 million in the first half. In the second quarter, 6.9 million ounces of silver equivalent sales consisted of 6.8 million ounces of silver and 2,400 ounces of gold, increasing 36%, YOY.
In the first half of 2012, 13.1 million ounces of silver equivalent sales consisted of 12.7 million ounces of silver and 6,200 ounces of gold, increasing 31% YOY. Second quarter production of 6.7 million and 13.4 million ounces in the first half was an increase of 10% and 9%, YOY, respectively. Operating cash flows in the second quarter was $172.9 million, increasing 3% YOY; in the first half it was $336.7 million, increasing 14% YOY. Silver Wheaton finished the first half with $1.1 billion in cash and $400 million in available credit.
Silver Wheaton has 798 million ounces in proven and probable silver reserves, almost twice as much as any silver mining firm worldwide. As the largest silver streaming firm worldwide, Silver Wheaton has 21 mining assets, 17 operating and 4 in development, consisting of 12 long-term silver purchase agreements and three long-term precious metal agreements. Silver production from Silver Wheaton's stake in Goldcorp''s Penasquito asset increased 42% YOY to over 1.8 million ounces. This will be the largest contributor of silver production in 2012. Silver Wheaton expects 7 million ounces at full capacity.
Various problems with Barrick's Pascua Lama asset pushed production back to mid-2014 but Silver Wheaton expects 9 million ounces of annual silver production in the first five years once it reaches full capacity operations. Until it's running at 75% capacity, Silver Wheaton has rights to a portion of silver production from Barrick's Veladero, Pierina and Lagunas Norte assets. Silver Wheaton's Zinkgruvan asset reached record production of 673,000 ounces in the second quarter, increasing 63%, YOY.
Silver Wheaton's recent streaming agreement with Hudbay significantly improves its near term and long term projections. Silver Wheaton will provide Hudbay with $750 million; $500 million initially, $125 million due once capital expenditures at the Constancia Project exceed $500 million and another $125 million due once expenditures exceed $1 billion. Silver Wheaton will pay the lesser of $5.90 per ounce for silver and $400 per ounce for gold or the prevailing market price. Silver Wheaton will acquire 100% of the life of mine silver production from Hudbay's 777 mine and Constancia Project.
Silver Wheaton will also receive 100% of the gold production from the 777 mine until 2016 or the completion of Constancia, after that its share will drop to 50% of the gold for the life of the 777 mine. This increases Silver Wheaton's silver production from 27 million ounces to 28 million ounces and 42,000 ounces of gold for 2012. This also increases 2016 production projections from 43 million ounces to 48 million ounces alongside 100,000 ounces of gold, a 90% increase from 2011. Aside from this recent agreement which substantially bolsters its portfolio, Silver Wheaton has plenty of cash available to pursue more investments throughout 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.