I really got the feeling Tuesday that we had reached an exhaustion top among the "buy the rumor, sell the news, quick money" types in silver and silver miners. So I not only made sales on the open and in the first few hours that I had planned for Wednsday but sold an additional 10% more than I envisioned selling at all. That paid off when Silver Wheaton (SLW) opened up 5.28% at $41.26 and then slumped to close at $39.02, down .43% by the close on monster volume of 26 million shares, second only to its highest volume day of Nov. 9, 2010. With regard to the physical silver market it appears to be just trading about 1.2% off its Tuesday high. However in reality it is really off about 3% where it traded electronically on Monday. That is in a thin market but given that it was during a time of crisis you can’t just dismiss it and say that wasn’t a real price that was achieved.
I know it seems that my strategy and plans change within hours but when there is this much volatility and news driving trading, my flexibleness is what has been paying off. Like at yesterday’s close I envisioned not making any purchase for a while, yet that has changed within hours after some research. First of with regard to SIVR I plan to add back to my positions if the price pulls back to below $32. I sold most of my SIVR about an average of $32.81 so that would be a 2.5% pull back. If it pulls back 5% I would be back fully invested. Remember my trades are to just take advantage of the overall trend and my theory that over the next few years’ silver is going much higher.
When I was looking at the action in the miners today I was a little shocked. They haven’t quite caught up with the massive move in physical silver (when I say physical I mean the silver futures market). Of the stocks I like, follow and are interested in purchasing; Pan American (PAAS), Silver Wheaton and U.S. Silver (USSIF.PK) have kept up with physical silver. While at the same time, Coeur d’ Alene (CDE) and Endeavor Silver (EXK) seem to have lagged. Those are the stocks I’m now looking to buy on pullbacks.
Coeur d’ Alene is my favorite miner in the sector. Remember Silver Wheaton is my favorite stock in the sector but they are a Silver Royalty Stream company, which is a different business model. What I really like about Coeur is during the recession they went forward with big investments when labor and materials were cheaper when others in the industry were scared to be so bold. Now it has three long life sustainable projects that are all hitting their stride at the right time as metal prices are surging. Their Kensington Alaska mine, which is primarily gold, is new, very efficient and a nice revenue booster. Their Palmerjo mine in Mexico also is a very comprehensive sophisticated operation. Also because many investors have had a bad experience with the stock in recent years, it trades at a relatively low 3.2 times 2011 revenue. I estimate Coeur can earn $2.10 per share in 2011 which makes the stock just 12.8 times earnings. You can tell from this stock’s valuation that the institutions are not involved in it heavily yet. I want to own it before they come around and move the stock up 10-20% just trying to buy it in quantity like they so foolishly always do.
One of the past knocks against Coeur stock was their high debt levels but that now stands at just $214 million, or less than 10% of equity and 26% of annual revenue. With their large cash investments now over and producing both revenue and earnings the cash is flowing and is rising with metals prices. In fact long-term this stock offers the most upside in the silver mining group. This is a $26.93 stock that could be worth $40 in two years and $45-50 in 3-5 years. So this morning I’m going to buy a 5% position on the open. I expect all silver stocks to continue pulling back so I only want to take a 5% position and average into this position. On Thursday I will probably add another 5% position. They report earnings next Monday, Feb. 28, so be forewarned.
Disclosure: I am long SIVR, CDE.