Is Silver Wheaton on the Right Track?


For every stock out there screaming "Buy me," others simply give us a nudge and a nod. While all the attention might be focused on their five-star peers, we can sift through Motley Fool CAPS to find four-star stocks giving us the "high sign" that they're on the path to greatness.

These opportunities -- including familiar names and beaten-down companies -- rank higher than most of the other 5,400 starred companies, and it pays to investigate their potential. This time out we'll take a look at silver streaming specialist Silver Wheaton (NYS: SLW) , a less obvious source for tomorrow's great buys.

Silver Wheaton Snapshot

Market Cap

$10.8 billion

Revenues, TTM

$778 million

1-Yr. Stock Return


Return on Investment


Dividend and Yield


Recent Price


CAPS Rating (out of 5)


TTM = trailing 12 months.

Of course, just because the 180,000-member CAPS community has chosen this stock as being on the road to greatness doesn't mean you should buy in too. Due diligence is still required, but let's see why they think it might merit your attention.

In the sight of greatness
Silver investors know that unlike Pan American Silver or Hecla Mining (NYS: HL) , Silver Wheaton doesn't dig for the precious metal itself, but rather buys the production from miners like them. Mostly it's driven by Goldcorp's (NYS: GG) Penasquito mine in Mexico and Barrick Gold's (NYS: ABX) Chilean/Argentinean Pascua-Lama project, but it continuously tries to add more streams to its portfolio, such as the rich lode it just added from base-metal miner Hudbay Minerals, which has operations in Canada and Peru.

As the Fool's precious metals guru Christopher Barker noted, with the delays at Pascua-Lama and the drop in anticipated production at Penasquito, the Hudbay stream will be a timely addition to the fold. It recorded second-quarter earnings of $0.40 a share, beating analyst expectations by $0.03, even though net profits fell 4.5% due to silver's lower price. And even though the hiccups from its two biggest streams are a sore point, revenues were up 3% as silver equivalent ounces soared 36% and production jumped 10% from the year-ago period.

Price is what you pay
Whether it's silver miners or silver streamers, the precious metals sector hasn't been an entirely good one to be in recently due to the softness in pricing. At under $28 an ounce right now, it's slightly lower than where it started the year and well below the $38 it was at this time in 2011. Hecla's shares are down 36% year over year, Pan American is off 45%, and Silvercorp Metals (NYS: SVM) fell 38%.

While these discounted valuations appear to make silver and its miners and streamers a great buy, there needs to be some sort of catalyst that will cause the gray metal's price to rise again, even if it's not exponentially.

But exponential growth may be on the horizon because of the sorry state of global finances and politicians too expedient to make the hard choices. It's far easier to try and inflate their economies to growth again with easy-money policies, and for me that will be the greatest catalyst spurring Silver Wheaton to new heights. While Chris Barker is still confident of it becoming a $100-per-share stock, it seems clear it hasn't run out of room to run. Highly rated CAPS All-Star xserver agrees that inflation will reinflate its stock.

Value is what you get
Trading at 19 times earnings and 14 times estimates, it's not exactly a bargain-basement stock, nor does its enterprise value trading at 18 times its free cash flow suggest that either. However, as the Fool's Rich Smith (who goes by TMFDitty on CAPS) notes, the fact that it's free-cash-flow positive at all is a major achievement, particularly when you look at other miners.

I agree and I'll be maintaining my outperform CAPSCall on the silver streaming specialist, though you can tell me in the comments box below whether you agree that there are enough levels for Silver Wheaton to pull from to make it more than dead money for the time being.

A great opportunity for you
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The article Is Silver Wheaton on the Right Track? originally appeared on

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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