A Spirited Combination With a Silver Lining

NEW YORK (TheStreet) -- They come from two different worlds -- silver and spirits -- but these two "hard" assets could add some shine to your portfolio.

First, the silver. In a speech given in Indiana earlier this week, Chairman Bernanke reminded us once again the Federal Reserve will be accommodating the growth of the investment markets for a long time to come.

What Bernanke said was bold and direct, "We expect to keep the short-term interest rate at exceptionally low levels to at least mid-2015... So long as price stability is preserved, and we will take care not to raise rates prematurely."

The Fed's interest rate policy, in Bernanke's own words, will be in place "...for a considerable time after the economy strengthens." Now that's what I call "accommodating" and should help hard assets to skyrocket in the months ahead.

One of those hard assets is silver, which I believe is not only the "poor man's gold" but is an essential precious metal used in technologies as diverse as electronics and killing virus' that cause diseases.

Yes, this amazing metal has dozens of industrial uses, but when you look at a 2012 American Silver Eagle one-ounce proof coin you'll feel the main reason people buy silver is because it's the other precious metal that is an enduring symbol of value and beauty. It, like gold, is also seen as a hedge against the depreciation of paper currencies.

Since the Fed's series of momentous announcements about its massive new version of monetary easing (a.k.a. "QE3"), the price of silver, as represented by the iShares Silver Trust ETF ( SLV) has soared, as the following year-to-date chart illustrates. SLV Chart SLV data by YCharts

One way to play the benefits of rising silver prices is to own one of the largest primary silver producers in the world. Pan American Silver ( PAAS) is the largest publicly traded silver miner today and the share price still has room to run. It keeps moving higher with the price of silver because it's growing its bottom line, as the following chart illustrates how its price-per-share and free cash flow appear to be moving in tandem. PAAS Chart PAAS data by YCharts

With its 350 million ounces of silver reserves and 2.6 million ounces of gold, things are definitely looking up at PAAS. That's partly because of its early-spring acquisition of a company called Mine-Finders, which owned the mineral rights at a mine named "Dolores", which means "sorrows" in Latin.

The Dolores mine also causes sorrows for those who weren't as smart as Pan American Silver. Once PAAS controlled Dolores it boosted both its silver reserves and gold reserves significantly, as you can read about at its informative Web site.

In fact, one of the best ways to explain what PAAS is by quoting the home page: "Pan American Silver Corp. is a Canadian silver mining company based in Vancouver, BC. The company was founded in 1994 with the intention to provide investors with the best vehicle to gain real exposure to silver."

It goes on to tell us that after 16 years of "consecutive production and financial growth, Pan American is the second-largest primary silver mining company in the world, with eight operating silver mines in Peru, Mexico, Argentina and Bolivia."

There are plenty of reasons to want to own shares of PAAS besides the impressive 36% operating margins (trailing 12 months) and the 28% profit margins. The company's board of directors launched a meaningful stock buyback program to purchase up to 5% of its outstanding shares in 2012.

The company's silver production was threatened by the unfriendly policies of the Argentine government, which levied huge increases in government royalties and taxes on Pan American's most promising silver project, Navidad, which is also one of the largest undeveloped silver deposits in the world. It's located in Chubut province.

PAAS addresses this on its Web site. The company is going forward with the plans, and explained it "... remains confident that by operating in good faith and by maintaining an open and transparent dialogue with the local communities and the Provincial government in Chubut, it will be successful in communicating the benefits that the responsible development of Navidad will bring to the project's immediate area of influence, the Province and Argentina."

In the meantime PAAS has given guidance that it will produce around 25 million ounces of silver in 2012 at a cost of $12.50 per ounce. Silver's current spot price is nearing $35 an ounce. So there's a great deal of profit waiting to be made.

That's part of the reason that PAAS was recently upgraded to "buy" from "hold" at Deutsche Bank on expectations its cash flow could rise in 2013. The target was raised from $22 to $26. Shares closed at $22.19 on Thursday, up almost 2.7%.

Let's be patient with PAAS and see if the shares might retest the Sept. 26 low of $20.01. If so, that would be an auspicious time to begin building a position.

If silver's price keeps rising through the end of the year and into 2013 it wouldn't surprise me to see PAAS surprise on the upside and reach $30.

Keep an Eye on STZ

Now that you're all fired up about silver and Pan American, let me calm you down with a few words about a U.S. company that's into another kind of "hard" asset and reports earnings on Friday.

Constellation Brands ( STZ) has added more money-making punch to its stable of brands by its summer acquisition of the remaining 50% of Crown Imports that it didn't already own. It also purchased the Mark West brand of pinot noir wine for around $160 billion.

That, added to its numerous other brand names (including Robert Mondavi wines and a long list of other wine labels, and hard-spirits under the Svedka Vodka, Black Velvet Canadian Whisky, and Paul Masson Grande Amber Brandy brands) should help lift its fiscal second-quarter earnings results.

Under the Crown Imports subsidiary it peddles some popular beers under the Modelo Brands that comprise Corona Extra, Corona Light, Coronita, Modelo Especial, Pacifico, Negra Modelo, and Victoria brands. After a long, hot thirsty summer, this segment should also report some pleasing news.

STZ rallied to a new 52-week high ahead of the earnings report, hitting $34.93 Thursday before closing at $34.72 on heavy volume. This share price lifts the current PE ratio to around 16 and the PEG ratio (five-year expected) to a generous level as well at 1.61. The year-to-date chart below helps illustrate why the shares of STZ have risen along with its rocketing earnings per share growth. STZ Chart STZ data by YCharts

Let's see if the share price comes "down to earth" in the days following Friday's quarterly report. Meanwhile, familiarize yourself with STZ and see if it announces a significant increase in its total cash and earnings while lowering its burdensome $3.47 billion total debt. Its price is too effervescent from my perspective.

At the time of publication the author had a position PAAS.

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

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