Silver Wheaton Corp. (USA) (NYSE:SLW)
Silver Wheaton Corp. (USA) (NYSE:SLW) has a different business model from other miners in that it is technically a “silver streaming” company. This means Silver Wheaton purchases the by-product silver production of a mine that it does not own or operate, allowing the owner/operator of the mine to receive an upfront payment and focus on its target metal (usually gold). This creates a mutually-beneficial relationship between the companies involved, because it gives Silver Wheaton Corp. (USA) (NYSE:SLW) the option to purchase silver at predetermined prices, while the owner/operator of the mines are able to monetize the value of its future, non-core silver production. This unique business model has lifted Silver Wheaton Corp. (USA) (NYSE:SLW) to a rare gain against its peers, with shares up roughly 15% in the past few months.
But in spite of these gains, shares till look undervalued, trading at 22 times forward earnings, a discount to the 10-year average of 25 and its peer group average of 44.
Risks to Consider: Most gold-mining stocks have sharply underperformed gold prices in the past two years, driving big losses for investors choosing to invest in gold miners as opposed to bullion or spot prices through exchange-traded funds like SPDR Gold Trust (ETF) (NYSE:GLD) and Deutsche Bank AG DB Gold Double Long ETN (NYSEARCA:DGP).
Action to Take –> If you are concerned the Fed’s recent actions, weakness in the dollar and inflation, then it’s time to take a page from Ron Paul’s portfolio and consider gold and silver miners. And while I wouldn’t recommend the same allocation as Paul has, I do like Barrick Gold Corporation (USA) (NYSE:ABX) and Silver Wheaton Corp. (USA) (NYSE:SLW) for most portfolios.
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