Two Stocks for Silver's Shining Moment
11/23/2010 10:59 am EST
Mark Skousen, editor of Hedge Fund Trader and Turnaround Trader, recommends two US miners riding the boom.
The Fed’s reckless decision to pour another $600 billion into the economy, on top of an expanding global economy, means only one thing: Commodity prices will soar again.
Indeed, gold is now near $1,400 an ounce and silver was going through the roof before pulling back below $28 an ounce. Most analysts think that silver has better upside potential, given that it is far below its 1980 high of $50 an ounce when the Hunt Brothers tried to corner the market.
The silver rally also is benefiting from a rumor that major Wall Street firms are unloading heavy short positions.
Hecla Mining (NYSE: HL), the lowest-cost silver mining company in the United States, is taking full advantage, advancing 34% in less than a month. Analysts think Hecla is deeply undervalued and should move sharply higher with silver prices. Let’s raise our stop to $8 here. [Shares closed just above $9 Monday—Editor.]
Another beneficiary of the silver rally is Coeur d'Alene Mines (NYSE: CDE), a classic turnaround story. Although it was founded in 1928 and is one of the oldest silver mines in the famed northern Idaho panhandle, it’s been a money loser for years and heavily in debt.
But things are changing. Coeur d’Alene is enjoying a growth spurt, combined with rapidly declining costs. The company reduced costs at its Palmarejo mine from $10.78 per ounce in the second quarter to an attractive $0.15 per ounce in the third quarter.
With nearly 450 million ounces of silver in reserves and indicated resources, and 2.9 million ounces of gold in reserves, the old mine is coming to life. Revenues rose 49% in the most recent quarter to $378 million. The company is expected to turn profitable in the next 12 months, and is selling for only 18 times future earnings. Yet, the stock is selling only slightly above book value of $23. [Shares closed above $24 Monday—Editor.] And despite the recent run-up, it still is selling at a 60% discount from its high of $60 a share back in 2006.
Set a protective stop of $20 a share. For those willing to take great risks, consider buying the January $30 calls, which last traded for 60 cents.