Silver Wheaton Has Struggled Since Reporting Earnings

| About: Wheaton Precious (WPM)
This article is now exclusive for PRO subscribers.

Summary

Silver Wheaton reported third-quarter earnings after the market closed on Wednesday, November 9th, and on the surface the results were horrible.

Overall revenues were higher from this time last year by 52.2% on the overall improvement of the gold and silver revenue streams.

I actually initiated my position in Silver Wheaton in late September and have been pretty upset with the purchase thus far.

Silver Wheaton (SLW) reported third-quarter earnings after the market closed on Wednesday, November 9th, and on the surface the results were horrible, with the company reporting earnings of $0.19 per share (missing estimates by $0.02) on revenue of $233M (missing estimates by $28.6M). The stock plummeted immediately after it reported earnings, moving 13%. Before I begin to parse through an income statement, balance sheet, or cash flow statement, I like to check out how the segment revenues did and see if there was anything glaring. Below is a table on how the company did during the quarter compared to last year.

Silver Wheaton Segment Revenues (thousands)

30-Sep-15

30-Sep-16

Y/Y

Silver

$98,926

$119,573

20.9%

Gold

$54,325

$113,631

109.2%

Total

$153,251

$233,204

52.2%

Overall revenues were higher from this time last year by 52.2% on the overall improvement of the gold and silver revenue streams which constitute roughly 49% and 51% of their revenue streams, respectively. These numbers were able to come to fruition in part because silver production increased 11% and gold production increased 86%. It also helped that the average selling price for silver increased 30% while gold increased 18% from this time last year. Despite the escalation in gold and silver selling prices and production, this did not please Wall Street because the news was already baked into the stock. Hence why investors dropped the stock 13% on the day after earnings were announced.

Leading into earnings announcement, the stock had gained 3.4% because of the volatile trading caused by the presidential election the night before. This is a very interest rate sensitive stock and can move to the tune of 5% just on a regular trading day. The stock has been beaten down mercilessly on the precipitous drop in gold prices since the election.

Even today the stock moved higher by 2.9% on the labor news and simply because the bears had just pummeled it to oblivion and buyers were scooping up the leftovers. The strong jobs report is probably the last bit of information the Fed needed to hike interest rates this month. However, there is no real certainty that they will hike interest rates anytime soon so it will be anyone's guess as to what gold will do from there. On the other hand, because the economy is heating, silver prices may continue to rise as it is used as an industrial metal in some instances.

I actually initiated my position in Silver Wheaton in late September and have been pretty upset with the purchase thus far. So far, I'm down 79.9% on an annualized basis, but will only purchase shares as long as they are below $20, because I believe that is where it offers additional value. I've selected $20 because it is the midway point of the 52-week range.

I swapped out of O'Reilly (NASDAQ: ORLY) for Silver Wheaton during the 2016 third-quarter portfolio change-out because I ended up turning a profit in the name (0.1%, or 0.5% annualized) and wanted to lock in those profits. I have lost out quite a bit, as O'Reilly has outperformed Silver Wheaton since the swap. For now, here is a chart to compare how Silver Wheaton and O'Reilly have done against each other and the S&P 500 since I swapped the names.

When it is all said and done, it matters what the stock has done in an investor's portfolio at the end of the day. For me, Silver Wheaton is one of my smaller positions and has been an anchor, as I'm down 25.2% on the name, while the position occupies roughly 4.1% of my portfolio. I will only make additional purchases in the name as long as it is below $20 as I stated earlier. I own the stock for the speculation portion of my portfolio, and I will continue to hold onto the stock for now. My portfolio is up 8.8% since inception, while the S&P 500 is up 5.4%. Below is a quick glance at my portfolio and how each position is performing. Thanks for reading, and I look forward to your comments.

Company

Ticker

% Change incl. DIV

% of Portfolio

Electronic Arts Inc.

(NASDAQ:EA)

1.30%

3.61%

General Electric Company

(NYSE:GE)

0.18%

4.80%

The Home Depot, Inc.

(NYSE:HD)

-0.26%

4.78%

AbbVie Inc.

(NYSE:ABBV)

-0.29%

3.90%

Starbucks Corporation

(NASDAQ:SBUX)

-0.93%

4.75%

Eaton Vance Corp.

(NYSE:EV)

-1.29%

4.73%

V.F. Corporation

(NYSE:VFC)

-1.73%

4.71%

Facebook, Inc.

(NASDAQ:FB)

-5.06%

8.69%

Skyworks Solutions Inc.

(NASDAQ:SWKS)

-8.07%

8.85%

Diageo plc

(NYSE:DEO)

-9.95%

6.48%

Gilead Sciences Inc.

(NASDAQ:GILD)

-13.05%

18.35%

Silver Wheaton Corp.

-25.17%

4.10%

Cash

$

22.24%

Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am/we are long SLW.

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.