Why Silver Wheaton Isn't Shining in 2012
Jun 25th 2012 10:08AM
Updated Jun 25th 2012 10:12AM
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 (NYS: 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%|
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 (NYS: 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 (NYS: PPP) San Dimas mine could help boost Silver Wheaton's streaming throughput, contributing to further profit gains. Silver Wheaton has similar arrangements with Goldcorp (NYS: GG) and its Penasquito mine, as well as Barrick Gold's (NYS: 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.
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The article Why Silver Wheaton Isn't Shining in 2012 originally appeared on Fool.com.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.
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