If you're bullish about the outlook for silver prices and have a little mad money to throw around, I've got just the stock for you: Silver Wheaton (NYSE:SLW), the only company that derives 100% of its revenue from silver sales. I use the term "mad money" because investing in Silver Wheaton is essentially an unhedged bet that silver prices will rise in 2007, and that isn't exactly a risk-free gamble -- especially in light of the recent weakness in silver stocks.

The price of silver hit a 25-year high of $15.17 per ounce last May, and shares of silver plays such as Silver Wheaton, Hecla Mining (NYSE:HL), Pan American Silver (NASDAQ:PAAS), and Silver Standard Resources (NASDAQ:SSRI) gained an average 69% through the end of November. The sector then took a breather as the iShares Silver Trust (AMEX:SLV) fell more than 8% from the beginning of December through the end of last week.

Now, is this the beginning of a cyclical decline or merely a pit stop along the way toward higher silver prices in 2007 and beyond? In my Foolish opinion, silver should trend higher in 2007, and investors should position themselves accordingly. Simply put, silver prices will climb higher because of robust demand for jewelry from emerging-market nations such as China and India, with their burgeoning middle classes, increased industrial demand for the soft metal as a conductor for electricity, and the simple fact that current stockpiles stand at a 50-year low.

Here are just a few reasons for my bullishness:

1. Jewelry demand: A spokesman for the World Jewelry Confederation recently said that China, India, and Russia "are expected to stand at the center of the expected double-digit [growth in] silver consumption in the coming years".

2. Industrial demand: According the Silver Institute, industrial demand for silver rose 11% in 2005 and represented 47% of total demand, up from 37% in 1995. As emerging-market nations continue to rapidly industrialize, demand for silver will keep pace.

3. Low stockpiles: According to CPM Group, a commodities-research firm, there are roughly 300 million ounces of silver in above-ground stockpiles, a 50-year low.

Lest we forget, there's also financial demand in terms of the iShares Silver Trust, which is required to actually hold silver to back its shares. iShares Silver Trust currently holds more than 100 million ounces and is expecting to add an additional 168 million ounces to back the issuance of new shares.

I don't know about you, but this all seems to point to a strong showing for silver in 2007, and I believe that Silver Wheaton is uniquely positioned to benefit from this situation.

Vancouver-based Silver Wheaton is the only company in the world that derives 100% of its revenue from silver sales, all of which are unhedged. The company, 50%-owned by GoldCorp (NYSE:GG), doesn't own or operate any mines (which helps with low overhead) but rather enters into long-term silver-purchase contracts, through which it buys production from mines and resells that production on the open market. At present, Silver Wheaton purchases all of the silver production from GoldCorp's Luismin Mines in Mexico and Zinkgruvan Mine in Sweden, as well as silver from Glencore's Yauliyacu mine in Peru, at a set price of $3.90 per ounce, subject to inflationary adjustments.

This is a pretty powerful business model in an environment of rising silver prices, as evidenced by the company's results in the most recent quarter. In the three months ended Sept. 30, Silver Wheaton reported revenue of $41.7 million, an increase of 130% from the prior year's quarter, as the company sold 3.5 million ounces of silver at an average price of $11.86 per ounce, compared with sales of 2.5 million ounces at $7.13 an ounce last year. Net income came in at $22.5 million, a whopping 236% jump from last year, as Silver Wheaton was able to boast a net margin of close to 54%.

The company is also moving to ensure that it has adequate supply to meet demand. Silver Wheaton recently obtained the right of first refusal to silver production from GoldCorp's new mine in Penasquito, Mexico, and has also taken stakes in various mining companies such as Bear Creek Mining and Sabina Silver. Silver Wheaton has recently said that it expects to sell some 16 million ounces of silver in 2007 and roughly 20 million ounces by 2009.

It's a pretty impressive picture, but, of course, it still amounts to a gamble on the price of silver, especially given Silver Wheaton's current valuation.

At a recent price of $9.82 per share, Silver Wheaton trades at roughly 17 times fiscal 2007 estimates. That's a pretty rich valuation for the mining sector, but it represents a 68% discount to the company's five-year projected growth rate. Simply put, Silver Wheaton represents the ultimate feast-or-famine play among silver miners, and my guess is that it will provide a feast for investors willing to step up to the plate.

For related Foolishness:

What are investors saying about silver stocks at Motley Fool CAPS? Find out for yourself, and add your own opinion, by joining the Fool's stock-rating community for free!

Fool contributor Will Frankenhoff is enjoying his time writing for the Fool more than reading The Financial Times, rooting for the Jints, or taking a nap. He welcomes your feedback at elves1us@yahoo.com. He does not own shares in any of the companies mentioned above. The Fool has a disclosure policy.