2012 Preview: Silver Wheaton

With 2011 nearly in the books, it's time to reflect on what has transpired this year and what companies could be facing business-altering decisions in 2012. On today's plate we have silver giant Silver Wheaton (NYSE: SLW  ) .

But, before we dig too deeply into what 2012 may have to offer, let's get a quick snapshot at how 2011 treated shareholders.

Year-to-Date Stock Return (26.1%)
Price-to-Earnings (TTM) 17.1
Price-to-Sales (TTM) 14.6
Cash/Debt $715.6M / $85.8M
Projected 5-Year Growth Rate 21.3%
Forward P/E 11.9

Source: Yahoo! Finance, M= millions; TTM = trailing 12 months.

Although silver hit nearly $50 per ounce in 2011, Silver Wheaton's shareholders were taken for a bumpy ride with the stock losing more than one-quarter of its value during the year. Not all hope should be lost, though, if you consider that the stock has nearly tripled in value over the past five years even with this year's "hiccup." But that's the past. Let's look ahead and see what could be driving Silver Wheaton's stock price in 2012.

What to expect
Let me put on my "Captain Obvious" hat, because I already know what's coming: The price of physical silver will have the greatest impact on Silver Wheaton's performance in 2012.

Investors are rarely rational creatures and often look past the fact that as a buyer and reseller of silver, Silver Wheaton has long-term contracts that are locked in at an absurdly low per-ounce cost of just above $4. I don't know about you, but the last time I looked, silver was hovering just under $30 per ounce. This means we can probably expect more of the same from Silver Wheaton in 2012 -- profits, profits, and more profits.

We can also probably expect another increase in the company's dividend. Back in June, I alluded to the likelihood that Silver Wheaton would raise its dividend in lieu of the company's incredibly high gross margin and cash flow. In November, the company obliged by tripling its quarterly payout from $0.03 to $0.09. I think this could be just the beginning for shareholders. With its contracts locked in for years to come, Silver Wheaton has a cash flow that's semi-predictable, allowing the company to do something similar to Newmont Mining (NYSE: NEM  ) , whereby it pays out its dividends in accordance with the price of the underlying metal it sells and the corresponding cash flow produced by those sales.

I also fully anticipate that silver will find its footing in 2012 after a very shaky 2011. Seen as a safe-haven investment in relation to weakening currencies worldwide, investors could once again turn to silver and its practical applications as opposed to the much more expensive (from a psychological basis) gold in 2012.

Foolish roundup
Based on a forward P/E of 11.9 alone, Silver Wheaton isn't the least expensive pea in the pod -- but it's without a doubt the one with the most lustrous future. Hecla Mining (NYSE: HL  ) , Pan American Silver (Nasdaq: PAAS  ) , and Couer D'Alene (NYSE: CDE  ) simply can't compete with Silver Wheaton's ultra-low silver costs, and that's what should give this stock an edge in 2012. Although my time-traveling device is broken, I'm going to place my bet in writing, on CAPS, and possibly in my own portfolio, that Silver Wheaton ends 2012 higher than where it is now.

What are your thoughts on Silver Wheaton heading into 2012? Share them in the comments section below, and consider adding Silver Wheaton to your free and personalized watchlist to keep track of the latest news with the company.

And if you're looking for one more great idea heading into the new year, consider downloading a copy of our latest special report, "The Motley Fool's Top Stock for 2012," in which our top-notch team of analysts highlights a company dubbed as the "Costco of Latin America."

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is in need of someone who knows how to fix flux capacitors. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's more powerful than 1.21 gigawatts.


Read/Post Comments (3) | Recommend This Article (18)

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 December 30, 2011, at 4:57 PM, tomami wrote:

    I purchased a few shares of SLW on the 28th of December at $27.97. Since I purchased my shares it has gone up 3.54%. I was waiting for this stock to fall below $28 to purchase my shares. If it falls below $27 I will purchase additional shares.

  • Report this Comment On December 30, 2011, at 6:35 PM, mhonarvar wrote:

    If you like SLW- check out Sandstorm Gold (TSX:SSL) and Sandstorm Metal & Energy (TSX:SND).

    These were both set up by Nolan -former CFO of SLW. They are fairly new ventures that aim to stream gold (for SSL) and metal, coal and oil (for SND).

    They both have streams producing revenues already and have the potential to replicate SLW's success.

  • Report this Comment On January 02, 2012, at 8:16 PM, Columbo1 wrote:

    As the Lone Ranger always said before being cancelled in 1954:"Hi Ho Silver".

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