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Investing in the Silver Bounce

Buy Silver Wheaton Now

Written by Brian Hicks
Posted November 11, 2014

Even more than gold, silver can be quite volatile.

I am no silver expert, but after attending an Asset Strategies conference this weekend, I believe the case for investing in silver is getting stronger by the day.

Silver prices have pulled back down sharply to $16.50 — a price not seen since March 2010. Meanwhile, the big picture of debt and the debasement of paper money is growing every day.

Silver’s scarcity is also enhanced by its many uses in industry and technology. In 2012, only 10% of production went to minting silver coins and medals. There are rumors that Apple’s recent production delays are due to shortages of metals such as silver.

Despite sagging silver prices, the U.S. Mint is selling record amounts of silver coins, and in the first half of 2013 alone, India imported 130 million ounces of silver.

Coins seem to be the most effective (and fun) way to invest in silver. One inexpensive way to buy them is to purchase pre-1965 bags of dimes, quarters, and half dollars, all of which have a high silver content.

This can be a great Christmas present — as long as your kids don’t break open the bags and start using the coins at the dollar store.

Silver mining stocks are also an option, but market silver prices are a bit below mining production costs, so this is not a good place to be right now. Miners are doing all they can to rein in costs, and this will serve them well when prices inevitably rebound.

However, my favorite silver stock does not mine any silver at all.

Silver Wheaton

Silver Wheaton (NYSE: SLW) follows a “royalty model,” investing upfront in mines in exchange for the silver by-product.

Silver Wheaton buys interest in this by-product silver for around $4 an ounce and then sells the silver at spot prices. This gives it better margins, lower risk, and better diversification than owning and managing mines directly.

In other words, the company shares in the upside for the price of silver without construction problems, the issue of coming in way over budget, or those pesky environmental liabilities.

Silver Wheaton has silver interests in three of the top five silver deposits in the world and agreements in Canada, the U.S., Mexico, Peru, Argentina, Portugal, Sweden, and Greece.

The company’s dividend policy is to pay out 20% of the previous quarter's operating cash flow. Net earnings in the second quarter were $63.5 million, or $0.18 per share, and analysts expect third quarter revenue of $180 million and net earnings of $0.23 a share.

Silver Wheaton will release third quarter results on Wednesday, November 12 before the market opens. Shares are down 31.9% in the last three months, more than the silver ETF.

This could be a great entry point, and there is nothing wrong with starting a small position in SLW looking for a turnaround in silver prices next year. But I will wait for a clear uptrend before aggressively recommending SLW.

When silver prices turn, they will probably move explosively. Don’t get caught flatfooted. Get started, and prepare for the bounce.

Until next time,

Carl Delfeld for Wealth Daily

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