Silver Wheaton Corp. Is Soaring: Should You Buy?

Here’s what makes Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) such an interesting play right now.

| More on:
The Motley Fool

Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) has risen 40% in less than a month, and investors are wondering if the rally will continue.

Let’s take a look at the situation to see if this is a good time to add Silver Wheaton to your portfolio.

Gold and silver rally

Gold and silver have surprised the markets with solid rallies to start 2016.

This wasn’t supposed to happen, but new fears about global economic turmoil are putting pressure on the U.S. dollar, and talk of a possible recession and negative interest rates in the U.S. are driving investors into safe-haven assets.

For the moment, the rally is showing no signs of slowing down, and the longer it goes, the stronger it becomes.

Is Silver Wheaton special?

The broader gold and silver sector is getting a lift right now, but Silver Wheaton holds a unique position in the group.

The company doesn’t actually own any mines; it simply provides mining companies with up-front cash to help them move their properties from the development stage to production.

In return for the cash injection, Silver Wheaton is given the right to purchase gold or silver produced at the mine for a very attractive price.

Why would a mining company do this?

Most of the deals are secured with companies that are mining base metals such as copper and zinc. The gold and silver are simply by-products extracted in the process.

Ideally, the miner wouldn’t have to turn to Silver Wheaton for funds, but copper and zinc prices have been in the toilet for the better part of five years, and mining companies simply don’t have a lot of options right now to secure cash.

The current situation is perfect for Silver Wheaton and its investors. The company is getting the benefit of rising gold and silver prices while still being able to negotiate new streaming deals with the beleaguered base metal miners.

In fact, Silver Wheaton’s production stream is expected to hit 55 million silver equivalent ounces by 2019, up from the expected output of 44.5 million ounces in 2015.

The gold rally is largely dependent on global fear to keep it going, but silver could continue to rise in the coming years even if the fear trade subsides.

Why?

The silver market is currently oversupplied, but industrial demand is rising thanks to the boom in solar panel production. At the same time, base metal miners are delaying or shelving expansion plans. About 70% of the primary supply of silver comes as a by-product of base metal production, so the market could see a silver supply squeeze in the next few years.

Should you buy Silver Wheaton?

The long-term outlook for the stock is compelling, and patient investors will probably do well, even if they buy today.

However, I would be inclined to wait for the market to take a breather before starting a new position. Volatility is the name of the game right now, and a pullback could be in the cards given the massive run over the past month.

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 Andrew Walker 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 »