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A Sterling Play in Silver

Here's one company poised to benefit from rising prices.

This column was originally published on RealMoney on Nov. 3 at 1:16 p.m. EST. It's being republished as a bonus for readers.

In the past few weeks, I have

profiled a pair of copper-mining companies --

Phelps Dodge

(PD) - Get PagerDuty, Inc. Report



(FCX) - Get Freeport-McMoRan, Inc. (FCX) Report

-- which have both rallied nicely. Although I still think these stocks are incredibly cheap, I'm becoming less constructive on the copper market, which could keep a lid on the miners' shares.

Today, I want to look at silver, a metal that I still think has some serious upside, and my favorite silver play,

Silver Wheaton


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Despite the move silver has made in the past year, its fundamentals remain incredibly strong. Above-ground stockpiles of the metal are about 300 million ounces, the lowest level in 50 years, according to a recent report from CPM. In fact, the silver market has had a net deficit for each of the past 17 years.

The extraordinary success of the

iShares Silver Trust

(SLV) - Get iShares Silver Trust Report

ETF has increased awareness and spurred strong investment demand. Combined with strong industrial demand from China, India and Russia, it should keep the market in deficit for several years to come.

Although purchasing iShares Silver Trust is a safe play, you won't get the leverage afforded by Silver Wheaton. This company isn't an actual miner; instead, it has purchase agreements with several mining companies from around the world.

To give you an idea of just how much leverage the company has, in its most recent quarter, Silver Wheaton sold 3.5 million ounces for $11.86 an ounce, with a total cash cost per ounce of only $3.90. The company has said it expects to sell 16 million ounces in 2007 and potentially 20 million ounces by 2009. If silver prices continue to rise as I expect, Silver Wheaton will be a home run.

In keeping with TSC's editorial policy, Jonathan Edwards doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Edwards is a research analyst at, where he works with Jim Cramer on Action Alerts PLUS. He follows the health care, consumer and financial sectors, with a focus on value stocks. Edwards appreciates your feedback;

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