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3 Reasons to Sell Silver Wheaton Today

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Acting on panic never helps investors, but it's still a good idea to question why you're really buying individual investments.

Consider silver stream firm Silver Wheaton (NYSE: SLW  ) . Though silver prices show no sign of letting up, you'll find a few of the 2,001 Motley Fool CAPS members weighing in on the company offer reasons to be bearish.

Here at The Motley Fool, we like to consider both the good and bad sides of an investment, so in this article, I'm highlighting three of the main bearish arguments on Silver Wheaton today. Be sure to read the bullish side as well, and then weigh in with your own comments below or rate Silver Wheaton in CAPS.                                              

1. Sell when others are greedy
High-flying silver prices have lead to strong quarters for Silver Wheaton and others such as Coeur d'Alene Mines (NYSE: CDE  ) , and 52-week highs at exchange-traded funds such as iShares Silver Trust (NYSE: SLV  ) . But it's also bringing more sellers like banks and coin collectors back onto the market which could add to supply. Coupled with the current silver surplus where supply is higher than demand, some investors are looking to cash out of Silver Wheaton while it's still hot.

2. Correction risk
While record-breaking gold prices have brought ETFs such as SPDR Gold Shares (NYSE: GLD  ) along for the ride, silver has a ways to go before reaching its record high set in 1980, despite its recent surge. But if the market changes its mind about the direction of precious metals prices, some investors may not tolerate the typically wilder swings in silver, which some believe could spell bad news for shares of Silver Wheaton.

3. Cheaper alternatives
Silver Wheaton has doubled over the past year and -- similar to peer Pan American Silver (Nasdaq: PAAS  ) -- is sitting near its 52-week high. Compared to the price-to-earnings ratio of about 20 for low-cost producer Hecla Mining (NYSE: HL  ) and the single-digit P/E for potentially prosperous copper producer Taseko Mines (NYSE: TGB  ) , Silver Wheaton's multiple of nearly 50 is too pricey for some CAPS members.  

To see details of what CAPS members are saying now about Silver Wheaton, just click on over to Motley Fool CAPS and have a look -- or add your own thoughts directly to this story in the comments box below.

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Fool contributor Dave Mock doesn't need more than one reason to skip the gym on any given day. He owns no shares of companies mentioned here.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool's disclosure policy does herbal tea, but only when the mood strikes it.

Read/Post Comments (9) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 24, 2010, at 10:10 AM, outoffocus wrote:

    The only reason I can see to sell SLW right now is to take a little profit. Outside of that, unless the Fed wakes up and raises interest rates, silver is on the move and if people sell out now, they may be kicking themselves later.

    But hey, if you want to sell your shares, I just may hop in line to buy them from you.

  • Report this Comment On September 24, 2010, at 10:15 AM, FalconBoston wrote:

    Where is this 50 P/E number coming from? I just looked on Bloomberg and it's trading at 36x TTM EPS and 30x NTM EPS.

  • Report this Comment On September 24, 2010, at 10:23 AM, BillHgata wrote:

    Is this a joke? Silver surplus? Can you say nakedly short on a MASSIVE scale!? This is nothing more than market disinformation and will scare unknowledgeable investors away because of BOGUS information, do your homework before you write dribble like this. Silver has been in deficit for eons!

  • Report this Comment On September 24, 2010, at 10:51 AM, ItzStockChartz wrote:

    First silver itself should outperform gold as the economy improves, since of its industrial use. The gold trade is getting crowded, money will move into silver as well as palladium/platinum as well as copper (which is set to breakout).

    As for PE comparisons SLW vs PAAS & HL

    SLW P/E TTM 49 Forward 29.2

    PAAS P/E TTM 33.4 Forward 25.9

    HL P/E TTM 19.3 Forward 26.8

    If P/E was the only factor then Apple @ 21.8 or 17.1 forward versus Research In Motion 9.1~7.6 means one should sell Apple & buy RIMM?

    P/E is just on fundamental to look at...just not the ONLY one.

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  • Report this Comment On September 24, 2010, at 11:11 AM, bfischer55 wrote:

    Silver has a long way to go, but your seat belts should stay fastened. Bernanke has a secret weapon in his briefcase. It's either a significant devaluation of the dollar, or a brand new currency that will equal a devaluation of up to 10:1. Given the size of the U.S. debt and liabilities, inflating our way out of debt and a currency devaluation appears to be the only answer, outside of significant tax increases and substantial entitlement cuts that are unlikely to occur at this juncture.

    I see silver passing $40 an ounce, and Silver Wheaton in the $70 to $80 range before the currency and debt mess is behind us. Remember, during GD1 when you could not own more than 5 gold coins, stocks on average lost 85% while stocks in gold mining companies gained 400% to 700%. Bernanke will do a better job averting GD2 than they did on GD1. It's his self-planned destiny. We're watching history in the making.

  • Report this Comment On September 24, 2010, at 12:04 PM, XMFSinchiruna wrote:


    Sorry to take issue with this one, but I simply don't think you'll find it an easy task identifying three easily defensible reasons to sell shares of SLW. :)

    outoffocus identified one solid reason above ... i.e. if one is already sitting on 900% gains from the 2008 low and is in need of raising some cash.

    You refer to increasing supply from scrap and other non-mine sources, but the 2010 silver survey showed a 6% decline in silver scrap supply in 2009 versus 2008.

    I also wish to refute any notion of silver being in a state of surplus supply. There is an awful lot of unallocated silver out there which has been leveraged through fractional reserve methods into multiples of the existing physical supply. I have studied this market very closely, and I can assure you that no real surplus exists in silver.

    Finally, please note P/E ratios do not provide very limited insight into relative valuations among miners. Miners are peculiar in the need to include both proven and prospective reserves within the value equation. Comparing SLW to miners on that basis further muddies the picture, since a major portion of SLW's unique value proposition lies in the sheer longevity of fixed-cost silver supply secured through its silver streams.

    I appreciate the attempt to present both sides of a story, but in this particular case I just think you faced an uphill battle. I maintain that SLW is going to $100, so defensible reasons to sell are likely to be limited to purely short-term considerations like the potential for corrections or the desire to lock in mammoth profits.

  • Report this Comment On September 24, 2010, at 12:13 PM, littlemike4 wrote:

    I see arguments both pro and con in the "bearish' claims. If the economy does turn the corner, money will flow toward equities; silver purchased as an investment safety net will hit the market. Also in that case, zinc and copper production will surge with an increase in by-product silver production. Thus a double whammy. But a major threat to SLW is their approach in the event of a severe downturn economically. Their debt is related to long term contracts on silver production, often by-product production. Therefore they "production" could go down even if the price of silver is going up. It comes down to a careful evaluation of how their debt is set up vs potential royalties. At low silver prices this is a highly leveraged play on pure silver. At silver prices well above SLW's "break even" point, the leverage is greatly reduced.

  • Report this Comment On September 26, 2010, at 9:51 PM, XMFBeachBum wrote:

    Re: Silver Surplus:

    I'm sure there's lots of details surrounding whether a real surplus exists, so how does it square with Barclay's estimates and SLW's own comments?

    "We're still in a surplus situation," said Brad Kopp, head of investor relations for Silver Wheaton Corp., a Canadian silver company --


  • Report this Comment On September 26, 2010, at 10:09 PM, Starfirenv wrote:

    Yup, surplus, move along. Just STFU and subscribe.

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