Well, jobs report came out positive on Friday. The economy added 268,000 jobs in April, “the biggest monthly total in more than five years.” Friday’s jobs report shows that the economy appears to be strengthening. So time to get back into stocks.
And if fact the S&P 500 is near support, so a bounce higher seems likely. The technicals, however, warn that there could be a further drop before the index heads higher, so invest with caution.
So what should I buy? Look for sectors that have outperformed in the last year but sold off lately, and ask if the trend higher is likely to continue. The first sector that comes to my mind is silver. Silver has fallen 20% in a week. The long-awaited correction in silver has finally come. From the graph below, the Philadelphia gold/silver index seems to have also hit support and thus likely to bounce higher. And all the technicals are flashing buy signals.
But isn’t the U.S. Dollar going to rise and crush silver? Hasn’t George Soros sold silver?
1) Yes, the dollar should rise against the euro. The United States’ economy is strengthening while the European economy seems to still be having problems. Rumor says that Greece may leave the eurozone. The reason why the euro is strong is because the European Central Bank has been raising interest rates. If they are rational, that should end soon, because if they keep it up, the European people will become squeezed, just like how the American people were squeezed at the height of the housing crisis.
2) Yes, interest rates will eventually rise, making Treasuries a more popular investment because their yields rise. And this will no doubt cause the U.S. Dollar to strengthening. But the Federal Reserve is not foolish enough to raise rates too fast again and hurt the average American family, who is still struggling.
3) Yes, Soros sold his silver, but John Paulson, who predicted the housing bubble, is bullish on gold. And silver and gold usually go up together. Plus, John Burbank clearly says that gold and silver are good long-term plays. Soros’ argument is that the Fed will act soon to curb inflation. The problem is it is a fine line, because the Fed should not raise rates enough to hurt the average American, as noted above.
4) Silver and gold should rise against the dollar until the Federal Reserve stops printing money. So for, that has not happened.
The correction seems near done according to Jeb’s report, which shows support for silver at $35, which is were the metal is now. It even claims for $100 silver by 2013.
Thus, all this should mean silver will go higher. And after such a sharp drop, I bet it will happen soon. Below is a screen from of silver stocks that have fell 10% this week.
From the screen, notice that all of the stocks have an RSI (Relative Strength Index) in the 30s to lower 40s. An RSI of 30 is traditionally considered oversold. Silvercorp Metals (SVM) has the lowest RSI.
But I think it is best to combine fundamentals with technicals. In the screen, the green highlighted statistics are considered very bullish numbers. Below are six companies from the list with the most number of green highlighted statistics.
Silvercorp Metals (SVM) – down 18% in 5 days, up 38% year-to-date
The best looking out of the group with eight green highlighted statistics, the Vancouver-based miner operates in Canada and China and mines zinc as well as silver. Its projected earnings per share growth for next year is 42%, the second highest in the group. Return on assets (23%) and return on equity (22%) are also the second highest in the group. And the high current ratio says that the company has more than enough current assets to cover current liabilities.
Silver Standard Resources (NASDAQ:SSRI) – down 13% in 5 days, up 52% year-to-date
Tied with the best on the list with eight green highlighted statistics, it has the highest quarter over quarter sales growth (728%) in the group. The Vancouver-based miner has assets all over the world and primarily explores copper, tin, lead, zinc, silver, and gold. It also has the highest profit margin (308%), operating margin (368%), and projected next year’s sales growth (94%).
First Majestic Silver (NYSE:AG) – down 13% in 5 days, up 410% year-to-date
The next best on the list with five green highlighted statistics, the Vancouver-based miner explores for silver in Mexico. It is one of the few pure silver plays in the group. It has the lowest P/E (4.75), forward P/E (8.14), PEG (0.47), and P/S (0.20) in the group.
Silver Wheaton (NYSE:SLW) – down 12% in 5 days, up 88% year-to-date
The next best on the list with four green highlighted statistics, the Vancouver-based company streams silver from mines all over the world, purchasing contracts for all of part of the mine’s silver production at low, fixed, predetermine rates. It has the highest gross margin (80%), second highest operating margin (65%), and second highest profit margin (68%) in the group.
Coeur d`Alene Mines (NYSE:CDE) – down 13% in 5 days, up 60% year-to-date
The next best on the list with three green highlighted statistics, the Idaho-based company mines gold and silver along with lead and zinc in South America, Mexico, the United States, and Australia. It has the second lowest forward P/E (8.32) and second highest quarter-over-quarter sales growth (110%) in the group.
Endeavour Silver (NYSE:EXK) – down 19% in 5 days, up 176% year-to-date
Tied with CDE with three green highlighted statistics, the Vancouver-based miner primarily mines silver in Mexico. The company has third highest gross margin (52%) and quick ratio (7.89) on the list. And its high current ratio says that the company has more than enough current assets to cover current liabilities.
Disclosure: I am long AG.