Buy, Sell or Hold: Silver Wheaton (NYSE: SLW) Is Just Getting Started

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I first recommended readers of this column buy Silver Wheaton Corp. (NYSE: SLW) on Oct. 10, 2010.

Since that recommendation, the company's stock has surged nearly 28% -- but that's just the beginning.

You see, Silver Wheaton just announced another blowout quarter, and despite the recent pullback in the silver market, this company is destined for greater things.

In fact, at current prices, the stock remains a screaming "Buy" (**).

Here's why.

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In its first-quarter earnings statement, Silver Wheaton reported the following:

  • Revenue was up 84% to a record $158.2 million.
  • Net earnings increased 142% to a record $122 million.
  • Production was up 10% year-over-year.
  • And the board of directors approved an inaugural quarterly dividend.
Indeed, Silver Wheaton's first quarter rewrote the record books.

Net earnings jumped 142% to $122 million, or 35 cents per share, compared to $57 million, or 15 cents a share, in the year earlier period.

Net realized purchased production rose by 10% year-over-year, and management indicated that it expects to see an 85% increase in the production of silver equivalent ounces over the next five years as major new mines come online.

In fact, Silver Wheaton is feeling so comfortable with its future that it's started paying a quarterly dividend. The initial payout has been set at 12 cents per year. While this is low in nominal terms, it will make the company available to all of the mutual funds that require their equity positions have a steady dividend.

It is clear from these results and the management's optimism that Silver Wheaton is embracing its role as the world's largest buyer of silver streaming contracts. It has built a network of global silver investments and is now involved in three of the four largest silver deposits on the planet.

Its portfolio of world-class assets includes silver streams on Goldcorp Inc.'s (NYSE: GG) Peñasquito mine in Mexico and Barrick Gold Corp.'s (NYSE: ABX) Pascua-Lama project straddling the border of Chile and Argentina.

Silver Wheaton produced more silver in the first quarter than it sold, but this was due to the timing of concentrate shipments from a couple of large mines.

This means that in the future, Silver Wheaton will have another large surprise for its investors, as this "overproduction" is sold into the market. In fact, it is my belief that these extra ounces of silver were sold in the second quarter, just as prices spiked.

While we won't know for sure until this summer, the lagging sale of these items has the company poised to provide an upside surprise.

This gives anyone who missed the blue-sky break out a chance to pick up shares of Silver Wheaton now. In fact, given the company's first-quarter earnings results, I feel comfortable putting an open ended "Buy" recommendation on this stock.

Silver Wheaton rose to a 52-week high of $47.60 on April 8, 2011, but has since pulled back to a price in the mid to low $30s.

Action to Take: "Buy" Silver Wheaton Corp. (NYSE: SLW) (**).

I believe Silver Wheaton has the necessary muscle to be extremely profitable over the long term. The trading activity of the market will give investors a chance to buy some assets trading at a discount to the intrinsic value.

That makes Silver Wheaton Corp. a long-term buy at these prices. It is growing its asset mix, its revenue, its production volumes, and its margins all at the same time. This company has an extremely low cost to purchase silver oz giving it a nearly bulletproof balance sheet.

(**) Special Note of Disclosure: Jack Barnes has no interest in Silver Wheaton Corp. (NYSE: SLW). Nor is he related to Peter Barnes, the retired CEO.

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed ConAgra Foods Inc. (NYSE: CAG)

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