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Silver futures have fallen from about $50 two weeks ago to $34.26 at the time of this writing. The stocks of silver producers have fallen along with silver. The silver producer stocks are technically oversold. However, these same stocks did not enjoy the huge rise in value that silver did just prior to its fall. This may mean the silver producers' stocks are ready to bounce.

The industrial use value is thought to be about $21/oz. However, if you add in all of the use for speculation such as for the SLV ETF and other such investment vehicles, the extra demand (scarcity) factor brings that base value up to approximately $28. The silver ETFs added 120M ounces of silver in 2010 to bring their total to approximately 547M ounces worldwide. The ETF's extra demand is real. The current futures value is only about $6 above the $28 figure right now. The industrial demand grew by 21% in 2010. Since the total global production of silver in 2010 was only 735M ounces, the ETF demand growth plus the industrial demand growth is very significant.

The continual stimulative monetary policies of the U.S., U.K., EU, etc. have increased the money supplies in those areas. The BRIC countries have had continuous inflows of investment monies in additions to any simulative actions of their governments. Some relevant inflation rates are: China -- 5.3%, India -- 9%, U.S. (for the 1st 5 months of 2011) -- 5.3%, Brazil -- 6.5%, and Russia -- 9.5%. In addition bond luminary, PIMCO, is shorting U.S. Treasuries on expectations of greater inflation in the U.S. With all of the above, a lot of people want to protect their money from inflation. They want to invest in gold, silver, etc. This means that gold and silver prices are likely to stay strong or to go up for the near future. This means that silver companies that grow their operations and profits should do well.

The table below compares the fundamental data of a some of the growing silver miners. The data is from TDameritrade and Yahoo Finance.

Stock

PAAS

CDE

SLW

BVN

HL

Price

$32.27

$25.28

$34.32

$39.92

$8.08

1yr. Analysts' Price Target

$48.86

$40.99

$53.50

$52.68

$11.81

PE

30.73

--

32.94

13.98

36.73

FPE

10.51

7.16

15.12

10.34

11.71

Avg. Analysts' Recommendation

2.1

2.0

1.9

2.7

2.4

5yr EPS Growth Estimate per annum

56.00%

25.00%

2.0%

13.10%

5.00%

Price/Book

2.28

1.09

4.98

4.10

2.21

Price/Cash Flow

17.2

22.3

28.31

12.77

19.22

Beta

1.32

1.89

1.57

0.74

2.45

Short Interest as a % of Float

2.07%

6.49%

1.18%

0.44%

9.04%

Cash per Share

$3.34

$0.72

$1.60

$2.81

$1.15

Market Cap

$3.48B

$2.26B

$12.12B

$10.13B

$2.26B

Enterprise Value

$3.13B

$2.38B

$11.46B

$9.30B

$1.92B

Net Insider Shares Purchased in last 6 months

--

(29,035)

--

--

(423,130)

Net Institutional Shares Purchased in last 6 months

--

(5,333,850)

--

--

914,971

%Held by Institutions

60.10%

60.06%

52.14%

58.82%

55.01%

Total Debt/Total Capital (mrq)

0%

9.07%

12.99%

1.58%

0.66%

Quick Ratio (mrq)

3.84

0.69

--

3.81

1.87

Interest Coverage (mrq)

--

2.61

--

--

36.52

Return on Equity (ttm)

7.86%

-3.17%

17.63%

30.09%

6.34%

EPS Growth (mrq)

37.36%

213.13%

168.75%

16.93%

106.73%

EPS Growth (ttm)

47.93%

-0.37%

135.38%

72.60%

-22.04%

Revenue Growth (mrq)

23.76%

126.10%

84.07%

21.24%

70.72%

Revenue Growth (ttm)

38.96%

81.53%

72.29%

23.21%

40.75%

Annual Dividend Rate

$0.10

--

$0.12

$0.49

--

Gross Profit Margin (ttm)

51.63%

26.25%

83.35%

47.68%

51.94%

Operating Profit Margin (ttm)

30.14%

16.18%

70.93%

32.31%

0.17%

Net Profit Margin (ttm)

18.10/%

-10.45%

74.18%

73.95%

14.83%

One thing to note from the above data is that all of the above companies have little or no debt. They should all survive a downturn well, if there is one. Also all are oversold (see the PAAS chart example below). They may all be ready to bounce upward soon.

(NASDAQ:PAAS) Pan American Silver Corp. is the world's 2nd largest silver producer with 7 silver mines in Mexico, Peru, Argentina, and Bolivia. There is some risk that the Bolivian mines could be nationalized. However, there has been no overt action to do this yet. Such an action would be a blow to PAAS. Otherwise PAAS looks like a great growth stock.

(NYSE:CDE) Coeur d'Alene Mines Corp. has mostly completed its major investments in its new mines. It is now in a position for its EPS numbers to benefit from its now lower costs. CDE also has a Bolivian mine, San Bartolome, which runs the same risk of nationalization as PAAS' Bolivian mines. Notably CDE's Price/Book is only 1.09. That's great for a miner.

(NYSE:SLW) Silver Wheaton Corp. acquires long term silver purchase agreements. It has 14 long term silver purchase agreements and 2 long term precious metal agreements. It acquires silver and gold production from counterparties in Mexico, the U.S., Greece, Sweden, Peru, Chile, Argentina, and Portugal. Its fundamentals look good for the near term. It has a long history of successfully signing lucrative purchase agreements.

(NYSE:BVN) Compania des Minas Buenaventura, S.A. is a precious metals (primarily gold and silver) company. It is headquartered and operates in Peru. It owns or owns an interest in many mines in Peru. It is perhaps riskier being headquartered and operating in Peru. However, it has some of the best fundamental numbers of a silver miner.

(NYSE:HL) Hecla Mining Company mines silver, gold, zinc, and lead. It owns a mine in northern Idaho and one near Juneau, Alaska. It is perhaps safer in that sense. However, it is the most expensive of the above stocks based on current and forward multiples. It does have two promising development projects. One is the San Juan Silver JV in Colorado, and one is San Sebastian near Durango, Mexico. Hecla is the lowest cost silver producer in the US. This indicates good management.

I have included the 1 year chart of PAAS below. Most of the silver stocks have similar charts.


(Click to enlarge)

One should consider the overall direction of the market before buying. One worry I have is the higher Initial Claims numbers for the last four weeks (431K, 478K, 438K, and 409K vs. an average of 399K during the period of the last Nonfarm Payrolls number). The total for the last four weeks is 159K higher than the total during the last Nonfarm Payrolls period. The 68K McDonald's hiring spree during the last Nonfarm Payrolls survey period was a one time event. It will not be present for the next Nonfarm Payrolls number. This means that the next Nonfarm Payrolls number could be 227K less, although I expect there will be some extra hiring from some companies other than McDonald's (NYSE:MCD). If the Nonfarm Payrolls number is less than 100K, that would be devastating to the equities markets. The market might well plunge. A plunge in the overall market would likely take the above mentioned silver miner stocks down with it.

The USD Index has been trending upward. If this trend continues, it may cause significant unwinding of the USD carry trade, which would likely result in generalized selling in the equities markets. A higher USD by itself would tend to bring down commodities prices, which might bring down silver stocks. The imminent end of QE2 may be causing a generalized commodity sell off. One would expect selling for this reason would be over by mid June. One could begin to average in now, or one might decide to wait until after the June Nonfarm Payrolls number. If the Nonfarm Payrolls number (due the first Friday in June) is much better than I have suggested it may be, that would be a big buy signal. If the Nonfarm Payrolls number is below 100K, it may be best to wait until mid June to buy. As always one should re-assess one's strategy as new information becomes available.

Source: These Silver Growth Stocks Are Oversold