Are These Good Investment Options?
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The US economy is showing signs of recovery, and most investors are bullish on banking institutions and REITs. With $85 billion of monthly mortgage purchases by the Fed, recovery could further bolster, but there are some serious threats to the economy. By printing more currency, USD is prone to depreciation, which means that the US could find its international debt inflating. US debt is already towering, and merely printing money can only deliver short term growth.
Also Greece and Spain are surviving on capital injections, and there doesn’t seem to a remedy for their debt crisis. Citing these concerns silver appears to be a lucrative commodity as it’s both, an industrial metal and a safe haven. However its fluctuations are wild and investors looking to avoid this volatility should invest in silver mining companies. Since the idea is to avoid volatility, I believe that rather than picking contrarian value plays, investing in undervalued growth stocks make more sense.
First Majestic Silver Corp (NYSE: AG)
The company set a record, by producing 2.4 million ounces of silver, up 36% compared to last year’s quarter. The management expects its quarterly production to be around 2.8 - 3 million ounces by 2013, and annual production of 16 million ounces by 2014. Analysts believe that its production is well on track and estimate 2013 EPS growth to be around a massive 71%.
Over the last year, silver prices have declined significantly. Despite this drop, the company reported a 4% increase in net earnings, coupled with a 3.6% rise in revenues. Its shares trade at a P/E of 5.37x with a PEG of 0.37x, indicating that its shares are still undervalued. YTD its shares are up by nearly 50%, and going by the company’s track record of solid performance and 2013 guidance, First Majestic is hard to miss.
Coeur d Alene Mines (NYSE: CDE)
At first CDE looks attractive with a debt/equity of 3%, P/B of 0.96x, P/FCF of 12.93x and estimated EPS growth of nearly 60% over 2013. However the company has been delivering disappointing numbers, and YTD its shares are down by 7%. Also its TTM P/E equates to a massive 98x which is quite expensive, especially since its net profit margin is only 2.4%. Weak fundamentals and poor financials should discourage investors from initiating long positions in the stock.
Silver Wheaton Corp (NYSE: SLW)
However Silver Wheaton appears to have promising fundamentals. Trading at a forward P/E of 16.85x with a PEG of 0.85x, shares of Silver Wheaton are hovering between “undervalued” and “fairly valued.” Its debt/equity of 2% and current ratio of 14.31x indicate that the company won’t be having any debt related worries. The company enjoys a net profit margin of a massive 73.3%, which is higher than most of its market peers. With an ROI of 19.77x, analysts expect the annual EPS growth to average around 36.55%, for the next 5 years.
The management aims to produce over 28 million ounces of silver this year, and 48 million ounces by 2016. Its quarterly silver production stood at 7.7 million, up 26% YoY, but the company reported a decline in its revenues and profits, owing to declining silver prices. The revenue and profit miss was mainly because of lower realized silver prices. However silver prices have increased by nearly 8% since November lows, and around 20% since August lows. I believe that Silver Wheaton is set to deliver solid performance, as silver prices have risen significantly since the lows it created in Q3.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!