Why Silver Wheaton Isn't Shining in 2012

As we approach the halfway point for 2012, now's a good time to look back at what's happening with the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Silver Wheaton (NYSE: SLW  ) . The silver-streaming company has an unusual business model in the industry, as it doesn't mine silver itself. Rather, it provides financing in exchange for getting a share of production from mining companies. Let's take a quick look at how the stock is doing so far this year.

Stats on Silver Wheaton

2012 YTD Return (9%)
Market Capitalization $9.27 billion
Revenue, Most Recent Quarter $199.6 million
Year-Over-Year Revenue Growth, Most Recent Quarter 26.2%
Net Income, Most Recent Quarter $147.2 million
Year-Over-Year Net Income Growth, Most Recent Quarter 20.5%
CAPS Rating ****

Source: S&P Capital IQ.

Why is Silver Wheaton losing in 2012?
As its name suggests, Silver Wheaton's success is largely tied to the price of silver. Because the company has arrangements to buy silver production from its mining-company clients at fixed prices, the current price of silver has a big impact on its margins.

However, you shouldn't get the idea that owning Silver Wheaton is no different from owning iShares Silver Trust (NYSE: SLV  ) or another bullion-tracking exchange-traded fund. That's because Silver Wheaton also has exposure to rising production levels with some of its clients. In essence, the miners that Silver Wheaton works with bear all the risk, leaving the streaming company to reap the rewards.

For instance, growth at the Primero Mining (NYSE: PPP  ) San Dimas mine could help boost Silver Wheaton's streaming throughput, contributing to further profit gains. Silver Wheaton has similar arrangements with Goldcorp (NYSE: GG  ) and its Penasquito mine, as well as Barrick Gold's (NYSE: ABX  ) Pascua-Lama mine, which is expected to start producing silver by the middle of next year. Add all this together, and you can understand why Silver Wheaton expects to see 60% growth in its silver production between now and 2015.

Perhaps the biggest opportunity for Silver Wheaton may come if silver miners continue to weaken. With struggling miners, the silver streamer may be in a great position to negotiate hugely favorable terms that could pay off once the silver market rebounds. With that kind of no-lose scenario, Silver Wheaton looks like a good play looking forward, and I intend to back that up with a positive CAPScall on the stock.

Silver Wheaton has some good prospects, but if you like precious metals stocks, we've got another company you really should look at more closely. Read The Motley Fool's latest special report on gold to discover the tiny gold stock digging up massive profits. It's free but only available for a limited time.

Click here to add Silver Wheaton to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Primero Mining. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On June 25, 2012, at 12:14 PM, amvet wrote:

    The sell off of Silver Wheaton stock is just part of momentium trading by funds and banks.

    Silver Wheaton buys silver from miners at a price of around $4 per troy ounce. If the silver price crashes to, say, $20, the margin is still $16 per ozt. What is the problem?

  • Report this Comment On June 25, 2012, at 12:45 PM, SN3165 wrote:

    This article could be summed up in five words - "Because silver prices are down."

  • Report this Comment On June 25, 2012, at 1:23 PM, kurtdabear wrote:

    Primero is already producing more than enough silver to cover the maximum share of production hedged to Silver Wheaton for the Goldcorp development loan, though that does not negate SLW's value nor dim its future prospects. I have no doubt that SLW will soar again some time in the future, but now is not a good time for stocks, particularly for producers of natural resources priced in US$$. People sometimes lose sight of the fact that what's happening in a stock is not necessarily reflective of what's happening in a company. Companies can continue to hum right along--even in bankruptcy--without regard for what's happening with their stock (hough, of course, stocks don't "hum right along" in bankruptcy). (Long PPP.)

  • Report this Comment On June 25, 2012, at 10:42 PM, skypilot2005 wrote:

    Dan,

    Thanks, for the piece.

    Recent update on Primero:

    http://www.primeromining.com/News-and-Events/News-Releases/N...

    Primero Discovers New High-Grade Vein in West Block

    06/25/2012

    I like the "Streamers" right now and own several including SLW.

    They have protection from escalating mining costs and profit from additional discoveries like the above.

    SLW's YTD stock performance has nothing to do with their future prospects. It's a solid well run company. I know that you know this. They are just currently mispriced by Mr. Market. Many miners are, as well.

    That is good. That is how we make $.

    Fool on.

    Sky

  • Report this Comment On June 25, 2012, at 10:47 PM, skypilot2005 wrote:

    On June 25, 2012, at 12:14 PM, amvet wrote:

    "What is the problem?"

    :)

    Sky

    Long PPP, as well

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