Billionaire Ray Dalio Bought $10.3 Million of Silver Wheaton Corp.: Should You Buy, Too?

The smart money is buying Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW).

| More on:
The Motley Fool

It’s my favourite way to invest in the mining industry—and apparently billionaire investor Ray Dalio agrees with me.

The stock is Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) and it’s an unusual bet. The company doesn’t actually own or operate any mines at all. Instead, you could think of them more as the banker of the resource sector.

Here’s how the company works: Silver Wheaton fronts mining companies with the cash they need to build a new mine. Once completed, the firm is allowed to buy a percentage of the mine’s production at a fixed price.

It’s a lucrative business. In the case of Silver Wheaton, the company pays an average of US$4.14 on each ounce of silver collected. It can then turn around and sell this metal for US$17 per ounce at today’s prices.

That’s a lot better than the margins you’ll see in any plain Jane resource stock. Running a profitable mine is a tough gig. Your returns can disappear if a producer runs into a labour strike or an expensive cost overrun.

Silver Wheaton, in contrast, avoids this risk. Its costs are fixed. The company pays a one-time upfront fee and then continues to earn royalties as long as the mine is in operation.

Needless to say, this has a lot of advantages over hoarding your wealth in gold and silver. Silver Wheaton is a productive business that can grow and compound over time. In 2005 one share represented about 0.5 ounces in silver reserves. Today that same share is now backed up by five ounces.

That can make a big difference in your returns over the long haul. As you can see in the chart below, the stock has handily beaten silver prices over the past decade. If you had invested $100 in Silver Wheaton back in 2005, your investment would now be worth over $600.

slw3

Source: Yahoo! Finance

Those returns are likely to continue. By 2018 the company is expected to collect 51 million silver equivalent ounces, up by more than 40% from today. At those rates, Silver Wheaton will be gushing cash flow, which can either be paid out to shareholders through dividends or reinvested back into more silver streams.

It’s this kind of growth that is turning heads on Wall Street. According to recent SEC filings, Ray Dalio increased the size of his position by more than a third last quarter. As of December, the billionaire investor owned over 510,000 shares valued at about $10.3 million.

And he’s not the only one bullish on Silver Wheaton. Last quarter a number of hedge fund managers, including John Burbank, Murray Stahl, and John Thiessen, initiated or increased the size of their positions in the company.

What could all of these money mavens see in Silver Wheaton? I’d say it could only mean one thing—they see an epic rally ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton. (USA). Silver Wheaton is a recommendation of Stock Advisor Canada.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »