Coeur d'Alene Mines: This Winning Trade Is on for Another Possible 50% Gain

| About: Coeur Mining, (CDE)

By David Sterman

The challenge for great investors is to do a regular reality-check on each stock you own, assessing whether it still holds value every time it moves up a few points. When shares of Coeur d'Alene Mines (NYSE:CDE) started to rally, soon after I recommended it, I noted that a quick upward move was taking place. [See: "The 3 Best Stocks to Own Now"]

The silver-mining firm was riding the back of a powerfully rally in the underlying metal. Shares moved up from $22 in mid-January to $35 by mid-April. The 60% gain in just two months gave me pause, especially as the precious metal itself was showing all the signs of a manic buying spree that would end badly. The logical move then was to take profits, as I suggested in April.

But it's time to shift course yet again. Those who missed out on the 60% upward move have just been given a second chance, though this move could take many quarters to play out. Most importantly, Coeur d'Alene doesn't need to ride the back of another powerful silver rally -- it needs to simply execute its business plan well.

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Still gearing up

Recall that Coeur d'Alene has spent the middle of the last decade acquiring and prepping mines for full-scale activity. The actual fruits of those labors started to appear in 2009, when sales more than doubled to $300 million and pushed past the $500 million mark in 2010.

Yet it's this year when the company is expected to really shine, pushing sales above the $1 billion mark. A few first-quarter stumbles led investors to grumble that the full-year targets would be tough to hit. They shouldn't have. Coeur d'Alene had teething pains ramping up its Palmarejo and Kensington mines, but they are now operating within expectations. For the full year, management sticks by plans of producing 20 million ounces of silver and 250,000 ounces of gold.

Pricing still important

It costs Coeur d'Alene roughly $9 to mine an ounce of silver. The profit spread looked wonderful when silver surged to nearly $50 in early May, but the spreads are still impressive with the current price of $35. Notably, the current $35 price target is roughly 25% above where management had expected when the year began.

And where silver prices go from here will play a key role in determining future share price moves. If silver prices stay in the mid to upper $30s, then the net-asset value of the company's mining assets would stand at about $40.50 a share, according to analysis done by UBS. Suffice it to say, further drops in silver prices would lower that target NAV, but it would likely stay handily above the current $26 price of the stock.

Add it all up, and shares of Coeur d'Alene have 50% upside if silver prices hold their own at these lower levels and if the company meets production targets during the next three quarters. It may take some time for investors to return to mining stocks like Coeur d'Alene after the recent roller-coaster ride, but it's clear that this stock, which was once filled with too much optimism, is now filled with too much pessimism.

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

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