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Get Long Silver Stocks

By Matt Badiali, editor, S&A Resource Report
Wednesday, December 7, 2011

If you're looking to buy cheap silver and get the potential for triple-digit gains, consider heading to the stock market...
Back in September, I highlighted how gold producers were finally starting to enjoy big earnings growth, thanks to robust and rising gold prices.
If gold manages to stay above $1,700, these companies will literally mint "real money." And should gold rise to $2,000 or $2,500 per ounce (which I believe it will), earnings will explode for these companies... and so will share prices. Plus, gold stocks are cheap right now.
The same situation exists for big silver companies...
Good silver miners can produce silver for $7-$10 per ounce. At today's spot price, they are selling it for a little over $32.50 per ounce. That means, conservatively, they are making at least $20 per ounce.
That means these miners are generating huge cash flows. Here's a table showing the operating cash flow growth for three of the world's top silver miners from 2009 to today.
Cash Flow
2011 Cash Flow
Increase in Cash Flow
Coeur d'Alene
$60.2 million
$458.2 million
$119.2 million
$270.4 million
Pan American
$115.9 million
$367.7 million
As you can see in the table above, silver miners are gushing cash. And as long as silver prices hold where they are, that cash will continue to flow.
The thing is, share prices haven't kept up. Shares of Coeur d'Alene grew just 32% since December 2009. Hecla and Pan American Silver shares are down 12% and 5%, respectively.
I use a simple metric to evaluate silver producers. If I can pay less than three times the value of this year's and next year's earnings, I'm in. The reason I like to look forward for earnings is that many of these miners are growing production. If you use last year's earnings, you miss that growth.
It's really a fancy way of saying I'll pay six times forward earnings. Right now, Hecla is trading just over that. But Coeur d'Alene and Pan American Silver are both under five times forward earnings.
That's incredibly cheap... And it can't last forever.
The huge cash flows silver miners are generating will eventually get the attention of investors. When that happens, silver stocks are going to make huge gains. It's likely we'll see companies trading for six times earnings today climb up to 15 times earnings or more once the trend really heats up.
In short, silver companies offer good value right now. And should silver continue its big bull market, these stocks could rise by hundreds of percent. If you're a trader, consider getting on board today.
Good investing,
Matt Badiali

Further Reading:

Matt recently told readers about his favorite diversified way to buy gold stocks. "With our downside limited, this is a no-brainer trade," he writes. But you'll need to act quickly… Jeff Clark is predicting an explosive rally in gold stocks over the next few weeks.
And as Matt told DailyWealth readers last week, a temporary slump in silver sentiment is giving investors a great opportunity to buy low. Get the full story here: How the "Big Money" Could Push Silver 54% Higher in 2012.

In The Daily Crux
Market Notes
Standard & Poor's warns that Germany, France, and other European countries may lose their triple-A credit ratings.
Pharma giant Pfizer touches four-month high... shares are up 25% in the past 12 months, including dividends.
"World's worst investment" natural gas fund sinks to a fresh all-time low.
Gold stocks are up more than 10% since their October buy signal.
Market Watch
Symbol Price
S&P 500 1258.47 +0.1% +2.9%
Oil (USO) 39.00 0.0% +2.0%
Gold (GLD) 168.18 +0.5% +20.9%
Silver (SLV) 31.93 +2.8% +8.2%
U.S. Dollar 78.53 0.0% -0.8%
Euro 1.34 0.0% +0.7%
Volatility (^VIX) 28.13 +1.0% +56.1%
Gold Stocks (^HUI) 571.56 +1.9% -3.3%
10-Year Yield 2.09 +2.0% -28.9%

World ETFs
Symbol Price
USA (SPY) 126.26 +0.0% +4.9%
S. Korea (EWY) 55.76 -1.1% -1.7%
S. Africa (EZA) 64.32 +0.2% -7.9%
Canada (EWC) 27.42 +0.0% -8.7%
Japan (EWJ) 9.29 -1.2% -11.7%
Singapore (EWS) 11.66 -1.0% -11.8%
Lat.America (ILF) 44.58 -0.5% -14.4%
China (FXI) 36.56 -0.8% -14.9%
Israel (ISL) 13.76 +0.7% -16.4%
Taiwan (EWT) 12.11 -2.3% -17.3%
Russia (TRF) 15.30 -4.1% -30.1%
India (IFN) 22.08 -1.1% -32.9%

Sector ETFs
Symbol Price
Utilities (XLU) 35.12 +0.3% +17.4%
Big Pharma (PPH) 69.76 +1.0% +14.0%
Retail (PMR) 21.78 +0.3% +12.7%
Health Care (IYH) 69.41 +0.4% +10.4%
Consumer Svcs (IYC) 71.47 -0.1% +7.3%
Big Tech (QQQQ) 57.08 -0.3% +6.8%
Real Estate (IYR) 55.14 -0.1% +3.6%
Industrials (IYJ) 64.11 +0.2% +2.4%
Internet (HHH) 72.60 -1.0% +0.5%
Software (PSJ) 24.66 -0.3% +0.0%
Defense (PPA) 18.13 -0.3% -0.5%
Transportation (IYT) 89.08 -0.8% -1.0%
Insurance (PIC) 15.28 +1.1% -2.8%
Media (PBS) 13.16 +0.5% -3.5%
Telecom (IYZ) 21.21 +0.2% -3.6%
Construction (PKB) 11.91 +0.5% -4.2%
Biotech (PBE) 19.52 -0.6% -5.1%
Water (PHO) 17.13 +0.1% -7.2%
Oil Service (OIH) 125.53 -1.1% -7.5%
Basic Mat (IYM) 67.55 +0.5% -8.0%
Financials (IYF) 49.23 +0.0% -9.2%
Semis (PSI) 14.28 +0.5% -11.6%
Nanotech (PXN) 6.36 +0.0% -36.7%
Alt. Energy (PBW) 5.55 -1.4% -45.1%

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