I like gold and silver miners for a good reason: Most traders and investors hate gold and silver right now. And bull markets in metals tend to brew in the well of despair, asserts Sean Brodrick, editor of Wealth Megatrends.
You can’t blame investors. Gold suffered its worst year in six years in 2021. The price of gold fell nearly 4% in U.S. dollars. Importantly, gold failed to capitalize on red-hot inflation.
So why like precious metals now? The list includes tightening global supply and demand, a dearth of new discoveries, and a growing middle class in Asia, where people have a cultural affinity for gold. And history tells us something about central bank tightening cycles.
We’re in one now — the Federal Reserve is telegraphing three rate hikes in 2022. Did you know that in the last tightening cycle, between 2015 and 2019, the U.S. central bank raised interest rates nine times, yet gold prices rallied nearly 35%? In the previous tightening cycle, between 2004 and 2005, the Fed raised rates 17 times and gold prices rallied 70%.
The fact is, select gold and silver stocks look dirt-cheap when compared to many puffed-up Wall Street favorites. Let me introduce you to one of those better metals stocks now.
Pan American Silver (PAAS) is based in Canada and operates throughout Latin America. It has nine producing mines and digs up silver, gold, zinc, lead and copper. It has a total reserve base of 529 million ounces of silver and 4.2 million ounces of gold. The company has become more of a gold producer (by revenue) than a silver producer.
The pandemic slapped this stock around like it did most miners. But the company is roaring back and its revenues jumped 53.2% in the third quarter to a new record. And it did that when silver was knocked down (but not out). Earnings took a hit thanks to rising costs. But three catalysts for growth could transform this company and send the stock higher. They are:
La Colorada in Mexico — It’s a new discovery and CEO Michael Steinmann called the results from drill holes at La Colorada “astonishing.” Results include a 77-meter interval containing 119 grams per ton silver, 7.7% lead and 13.62% zinc.
Escobal in Guatemala — This is a large silver mine which Pan American acquired from Tahoe. It’s rich in silver, and also contains gold, lead and zinc. Escobal was the world’s third largest silver mine. It halted production in 2017 due to local opposition; Pan American is working through the courts to restart.
Navidad in Argentina — This is an undeveloped silver deposit with 632.3 million ounces of silver. Local opposition has also seen this project delayed, but this could work out, too.
There’s no denying that Pan American has some local trouble. But either Escobal or Navidad could get the go-ahead this year. And that would light a booster rocket under this stock. In the meantime, you’re paid to wait. Pan American Silver recently sported a dividend yield of 1.8%. That dividend is projected to grow 19.49% per year for the next three years.
Looking forward, Pan American’s earnings are projected to rise 108% this year. To be sure, a lot depends on the prices of gold and silver. But both metals are positioned to cycle higher. So, we’ve got growth, potentially massive mines either coming online or advancing, and it’s a dividend raiser.
