Building Up a Position
After you read this Alert, we will add 200 shares to our position in Giant Interactive (GA:NYSE). Also, we want to provide readers with an update on Coeur d'Alene Mines (CDE:NYSE).
First, Giant Interactive is trading slightly lower at $8.70, and we are going to add to our current model portfolio position. Once the purchase is complete, Giant Interactive will make up 3.5% of the model portfolio. As we mentioned in our initiation piece on Giant Interactive a few weeks ago, we will look to build our new positions slowly in this volatile environment. The company has huge growth potential due to the expansion of online gaming in China, and we believe shares have high price-appreciation potential over the next 12 months. Also, strong financials and a recent buyback announcement by management should limit downside risk.
Next, Two-rated position Coeur d'Alene Mines announced that its signature San Bartolome mine in Bolivia should produce nine million ounces of silver, in line with company forecasts. Despite this positive news and an uptick in silver prices today, shares are trading 3% lower at $1.75. Management struggles to regain credibility following the prior quarter's unexpected loss, which management blamed on production delays and higher costs during its recent conference call.
Coeur d'Alene has traded sharply lower over the past three months along with most commodity related stocks. Our thesis on this name was based on valuation, since silver prices were trading as high as $22 an ounce six months ago. Silver prices have since collapsed to a current $13. While we still believe shares of this name are attractively valued, there are numerous short-term headwinds that have us concerned. First, if we see a continued decline in silver prices, our valuation thesis may be at risk. Second, management is under pressure to reduce costs and maintain production guidance following the prior quarter's miss.
Seasonally, precious metals usually have their best showing in September. Also, we should get more clarity on costs and production in next quarter's earnings. If management cites further delays or if we see a continued decline in silver prices, we may look to exit this position.
For now, we maintain our Two rating on Coeur d'Alene and will updated readers on any news.
Regards,
Frank Curzio & the Stocks Under $10 Investment Team
Frank welcomes your questions on Stocks Under $10. Please
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Recent Actions
Since joining the model portfolio, this name's share price has more than doubled, making this a good time to book gains.
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