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Monday May 21, 2012
Silver Wheaton: Best in class
by Jack Adamo, editor Insiders Plus Silver Wheaton (SLW) is the best in class of the silver "miners." Actually, it doesn’t mine; it is a "streaming" company. It advances money to companies to start drilling proven ore veins, then buys a percentage of their output at an agreed upon price well below the market. This business model is more like a finance company, but with very solid collateral. The company has only 25 employees, despite a $9 billion market cap. Last week, the company reported Q1 earnings per share up 20% on a 26% rise in revenues. Mr. Market promptly took the shares down 8%. The slight discrepancy between the rise in revenues and earnings was due to a big difference in taxes. Last year the company had a large tax credit, this year an expense. The report was in every way excellent. We view this pullback as a present. The shares are trading under $25. I think they could be in the high 30s six months from now. Silver Wheaton also pays a small dividend of 1.4%, which allows many mutual funds to own it that otherwise would be prevented by their charters. The company has committed to pay out 20% of the prior quarter’s operating cash flow in dividends, so while dividends may not be steady, they are likely to rise over time. Silver does not always rise when gold does, but eventually rises even more (on a percentage basis) because its lower price makes it more attractive to small speculators. Gold miners are at historically low relative valuations to the metal. That will inevitably catch up. And silver is at historically low valuations relative to gold. That’s very likely to catch up too. So there’s lots of upside in Silver Wheaton. Learn more about this financial newsletter at Jack Adamo's Insiders Plus. Related articles: 
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