Download now: The Downfall of Cable, and the Rise of 5G!

Silver Wheaton (NYSE: SLW) Betting Big

The Exhilaration of Speculation

Written by Geoffrey Pike
Posted April 6, 2016

silverwheatonyoOverall, investing can be tough and frustrating at times. We are impatient human beings for the most part. Even if someone offered a guaranteed 5% annual return on a stock right now, we would not find it exciting, despite our world of near-zero interest rates.

I am generally a conservative investor and recommend the same to others. We work hard for our money, and we should not squander it.

Still, there is a time for speculation. It is exhilarating to swing for the fences every now and then, as long as it is a calculated risk that will not wipe you out.

I favor gold as an investment, but it isn’t to make huge profits. Big profits in gold are possible, but it is more of an investment for diversification and a hedge against disaster and currency depreciation.

Silver starts to get a little more exciting. Silver tends to move with gold, but it is far more volatile. The moves will be bigger for silver in either direction. This is good in a bull market, but not good in a bear market.

But if you are really looking for a high risk and high reward investment, go straight to the mining stocks. Better yet, to get your already-risky investment on steroids, go for a mining stock that specifically targets silver.

Silver has done poorly as an investment for the last 5 years. But up until 2011, it had done quite well for about 10 years.

If silver is set to move higher again, then silver stocks are one of your best bets for a huge profit potential. As fast as they have gone down in the last 5 years, they will go straight back up in a new bull market.

One such stock to consider is Silver Wheaton (NYSE: SLW), based in Canada. The stock was near $50 per share back in 2011. It has been in a range between $10 and just over $20 over the last year. Prior to 2006, it was trading below $10. This just shows how volatile this stock is, which is fairly representative of the mining industry. Actually, Silver Wheaton may have seen slightly less volatility over the last decade.

Silver Wheaton Makes a Deal

Silver Wheaton was recently in the news when it announced a deal to sell over $500 million worth of shares. A group of underwriters will purchase approximately 33 million shares for a price of $16.60.

When the news was announced, the stock fell. It had been trading around $18 per share, but the price fell to reflect the valuation put on it by the underwriters.

The deal is expected to close this week. The company is expected to use the money to pay off a portion of its debt. In November, the company obtained a line of credit to purchase future silver production from a mine in Peru for $900 million.

There are mixed opinions from analysts regarding the stock and the strength of the company. But despite a rather disappointing performance in income and the stock price, the company still maintains a strong financial position. It also helps being based in Canada, and having most of its exploration activities in relatively stable countries where property rights are generally respected.

And despite its debt that was just discussed, the company’s debt-to-equity ratio is considered low as compared to the industry.

Even though the short-term implications of this financial deal have been negative so far for investors, the company is well positioned to take advantage of a surge in silver prices.

This still remains a highly risky stock, just as any mining company is now. But it is also the kind of company that could go up 10 fold in the matter of a few years or less if we see a surge in silver prices.

Again, you work hard for you money, so this isn’t something to bet the farm on. But with some risk comes some potential for big rewards. If you want to put some money down on a speculation to let it run, then this industry and this stock are a good consideration.

If you can time it with the next major bull run in the precious metals, that would be better. But, of course, we can’t predict that with certainty. You can always dip your toe in the water and reassess it later in the year.

Buffett's Envy: 50% Annual Returns, Guaranteed