Wednesday, May 19, 2010

Silver Wheaton (NYSE:SLW) a Buy?

For true believers, Silver Wheaton (NYSE:SLW) will be a company they'll buy on any significant fall in share price, and that happened Wednesday, as it plunged 6.54 percent, or $1.33 a share.

Even its 52-week performance has been terrific, as it's low was 7.12, while recently reaching its high of 21.58. But go back to the latter part of 2008, and the stock dropped to as low as $2.51 a share, which is you would have bought it at that time, you would have been up by over 700 percent.

Volume Wednesday was 14,661,109, over double it's three-month average of 6,823,880. That means the traders decided to take some profits, like they did with gold, as even just a couple of months ago the stock was at about $15 a share, and has surged strongly.

The business model of Silver Wheaton is as simple and profitable as it gets, as they provide capital for miners in return for income from the silver production.

With tight capital markets, that's sure to continue for some time, and even though it will end up moving in unison with market corrections, over the long term this company has a lot of upside potential, and is sure to increase its value far beyond where it is now over the next decade.

Also consider that operating margins at this time are only a little above $13 an ounce of silver for the last quarter, which means cash flow should continue to rise in a big way.

Even if demand for silver slows down some, Silver Wheaton is positioned for a long run, which should build the wealth of those willing to stick with them over the long term.

Is the company a buy at this time? I would say every time you see a drop of this size, it's a good time to buy for a company ensured of a very profitable future. What none of us should do is wait for the perfect timing, where you hope it will drop even more so you can buy at the absolute bottom. That usually backfires. Buy it when it's cheap, don't attempt to get the cheapest, as that requires too much luck to be effective.

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