Circus-like antics are not over for this market. Actually, that’s a culmination of the Big Sho...
Sterling Opportunities in the “Other” Metal
03/01/2010 1:00 pm EST
Jack Adamo, editor of Jack Adamo's Insiders Plus, finds some of the market's most shining opportunities in the silver-mining industry.
[Because of] the higher price of metals lately, along with restrained prices for energy (a big part of mining expense), I believe fourth-quarter earnings reports on [two silver] companies have a good chance of surprising strongly to the up side. [They] have corrected more than the market lately, in line with their normal volatility.
Pan American Silver Corp. (Nasdaq: PAAS) has more than tripled its silver production in the last eight years. Its stock has trounced the Standard & Poor’s 500 over the last five, ten, and 20 years. The company operates in Mexico, Peru, Bolivia, and Argentina, all reasonably stable countries.
Last quarter the company earned 31¢ a share, compared to a loss of 41¢ in 2008, a rough quarter for everyone. Silver output rose 30%, cash costs declined 35%, and cash flow was a robust 59¢ a share. Full-year earnings were 71¢, up 137% from last year’s 30¢. 2010 earnings are expected to jump to $1.27, giving the company a reasonable [price/earnings ratio] of 17x. The company has no long-term debt and $193 million in cash and short-term investments.
If we get the rise in metal prices I expect, the company will produce surprisingly strong earnings. Last year’s average price was just $14.67 [an ounce]; spot silver is $16.44 at the moment and should go higher.
Wall Street has a wide range of one-year price targets for this stock, from $22 to nearly $26, or 19% above today’s price. I don’t know which, if any, will be right, but I expect the company to continue to deliver positive returns and beat the market for years to come. Buy Pan American Silver up to $24.50. (It closed Friday at $21.50—Editor.)
Silver Wheaton (NYSE: SLW) has 17 silver purchase agreements, with 14 operating mines and three development stage projects, whereby it acquires silver production for a per-ounce cash payment [about] equal to the lesser of approximately $4 or the then prevailing market price. It also has one agreement to buy gold production at a per-ounce cash payment of the lesser of $300 or the then prevailing market price.
The actual costs are higher, but [they] are still low. For example, the most recent deal should end up costing the company about $7.57 per ounce of silver, all in. These are very low risk [deals], since they are largely insulated from rising fuel or labor costs—the biggest expenses in mining. That leaves a lot of the market price left for pure profit with the current spot price of $16.44 in a long-term up trend.
The company is expected to earn 80¢ this year, compared to 39¢ last year, more than doubling its profit, yet it sells at a P/E of 20x, which is still lower than the industry average. The company's silver and gold interests are located in [more stable regions], like Pan Am, avoiding the most unstable regions. Brokerage firms have price targets for Silver Wheaton from $19 to $22.
Buy Silver Wheaton up to $17.25. (It closed Friday just above $15—Editor.)Subscribe to Jack Adamo’s Insiders Plus here…
Related Articles on STOCKS
It seemed like we were in for a quiet October. The Fed made its expected rate increase and didn&rsqu...
Well, that was quick. The swift drop in the major averages has affected just about everyone. So far,...
Alibaba Group Holding Limited (BABA) and just about every China internet name continue to look techn...