BALTIMORE (Stockpickr) -- I firmly believe that the bull market in precious metals and most leading commodities is far from over, and far from a bursting bubble.
I think that the recent weakness in key precious metals such as
SPDR Gold Trust
iShares Silver Trust
is nothing more than corrections in a major bull market and that the run still has many years left to go.
You see, most of the uptrends in the precious metals markets are still intact. Although we have seen some heavy selling lately, that selling hasn't taken any of the leading metals below the key trend lines that would signal the run might be over. Basically, the trend is still up in the metals market, despite what the bears might tell you.
Some of the selling in the precious metals market is also due to the hot money in hedge funds coming out of the trade. Recently,
The Wall Street Journal
reported that hedge fund SHK Asset Management liquidated its gold futures positions, estimated to be worth $850 million, or more than 10% of the U.S. futures market. The manager of the fund, Daniel Shak, said that the gold trade had been profitable for him for years, but he decided to sell due to rising margin requirements set by the exchanges.
The removal of the hot money will be only temporary, in my opinion, evidenced by how quickly the metals market is snapping back off of the dangerous situation bubbling to the surface in Egypt. Let's be honest here: The world is far from fixing the geopolitical problems that we see developing in places such as Egypt. Those issues aren't going to go away anytime soon.
I'm also sticking in the bull camp for commodities and precious metals due to the
never-ending money-printing. I suspect that some latecomers to the party have started to pull money out of the metals trade and reallocate their cash back into equities to take advantage of the Fed's quantitative easing policies. This will end up being the wrong move because the debasement of the dollar will eventually be far more bullish for commodities and metals than for equities.
When a major currency such as the U.S. dollar is being debased, market players want to own hard real assets to protect their wealth. You just aren't going to get that with equities or bonds in the later stages of currency devaluation that cause far bigger selloffs then what we've seen up to now in the dollar.
I strongly believe that the recent pullbacks in the precious metals market should be bought up, so I would suggest that market players take a hard look at buying these
One of my favorite names for a play on the silver trade is Canada-based
, which, together with its subsidiaries, operates as a silver streaming company worldwide. This stock has been absolutely crushed in 2011 with shares off close to 20% and well off the stock's 52-week high of $42.34, recently trading at $32. If you agree that the metals plays should be bought up now, then you need to take a very hard look at this stock.
Silver Wheaton doesn't actually mine the world for silver; it operates as more of a silver royalty trust. Basically, this means that the company holds long-term contracts with other mines to buy silver from them at around $4 an ounce. That's what makes Silver Wheaton such a great unhedged play on the rising price of silver, since those long-term contracts are set at such a low price. If silver really takes off, then SLW will be able to capitalize on all of those gains. Its earnings will skyrocket because it's so leveraged to the spot price of silver.
During their most recent quarter, earnings rose from $33 million to $69 million year over year, and cash flow surged from $45 million to $79 million year over year. The company also has around $141 million in net cash on its balance sheet.
The stock isn't cheap based on its forward price-to-earnings of around 21, but the market will easily pay up for this stock if silver takes off. Remember, since SLW is unhedged, it isn't burdened with the high production costs of silver miners. Higher output from silver miners combined with the rising price of silver will allow SLW to reap huge profits.
Silver Wheaton was recently listed as one of
, and it was one of the
Another precious metals play I like is Canada-based
, which engages in the acquisition, exploration, development and operation of silver mineral properties in China and Canada. This is another precious metals name that has been hit with some hard selling in 2011, with shares off around 17%. This drop in the stock so far this year has taken shares from their 52-week high of around $13.60 to current levels of around $10.95.
The stock was recently upgraded at BMO Capital Markets from market perform to an outperform rating. That same analyst issued a $15 price target on the stock. Keep in mind, that the stock isn't just a play on silver; Silvercorp also has mining projects that are producing or in predevelopment for zinc and lead.
From a technical standpoint, SVM has recently found some solid support near its 200-day moving average of $8.81. I think you can buy this stock now or wait for it to trade above the 50-day moving average of $11.92. The ultimate confirmation of a major bull run in this stock will occur if it can manage to trade above some heavy past resistance at around $13.60 a share. If it does end up trading above that level, watch out, because I think it will take off and go much higher.
Silvercorp Metals was one of the
, and according to Karvy Global, it was one of the
Three more precious metals plays that I like are
Coeur d'Alene Mines
, which give investors a double precious metals whammy because they're gold and silver mining operations. As long as both gold and silver trend higher in 2011, all three of these firms should profit handsomely.
Kinross Gold is the largest of the three, with a market cap of around $19.4 billion. The company has mining properties in Brazil, Ecuador, Russia, the U.S. and Chile. Kinross made some key acquisitions in 2010 that could pay off big this year as some of those mines come online and hopefully produce new growth revenue streams. So far in 2011, the stock is down around 10%, so market players should look to buy this leading gold and silver play on weakness.
Kinross shows up in the portfolios of
as of the most recent reporting period. According to Karvy Global, it's one of the
, while Louis Navellier recently included it as one of
Gammon Gold is a mining company that is also engaged in the exploration for and development of gold and silver deposits in Mexico. The stock is off around 6.8% so far in 2011, and it's trading just a few points its 52-week high of $10.47 a share. This stock has a reasonable forward price-to-earnings of around 11 and is cash-rich, with around $70 million of net cash on its balance sheet.
From a technical standpoint, GRS recently found support at its 200-day moving average of $6.93, and the stock is starting to trade back above its $50-day moving average of $7.53. Traders should watch for a near-term breakout on this stock if it can manage to trade above some past overhead resistance at around $8.40a share. A move above that level should set the stock up for a run back toward the 52-week high, and then possibly towards its three-year high of $12.63.
Coeur d'Alene Mines is a silver producer with gold assets located in North America. The company controls silver and gold mining properties and companies located primarily in South America (including Chile and Argentina), the U.S. and Australia. Coeur d'Alene Mines has held up pretty well in 2011 compared with many of the other mining stocks, with shares off only around 12%.
One top reason the bulls should love Coeur d'Alene Mines is that the stock is heavily shorted by the bears. The current short interest as a percentage of the float for CDE sits at around 7.2%. If the bears are forced to cover their short positions, then I think this stock can easily trade back above its 52-week high of $28.20 a share. Keep in mind that around $28, CDE has a ton of past overhead resistance, so a move above that level would be very significant.
From a technical standpoint, traders should watch for CDE to trade back above its 50-day moving average of $25.23 a share. I would look to buy this stock now and get ready to enjoy the massive short squeeze that I think has a high probability of occurring in 2011 for CDE.
Recently, Coeur d'Alene Mines showed up on a list of
To see more precious metals stock plays, including
, check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.