Silver Stocks: Is This Fallen Angel Worth A New Chance?

People ask me why I prefer silver over gold recently. There are several factors why I like in silver, the first is the cheap price, you don’t need to use leverage to enter the market, the second is that I have a bearish view of the gold/silver ratio and the third, but not the last thing is that it is not favored by central banks or ETFs and flies die when elephants fight.

So, in this post I would like to analyze some silver stocks. As you might remember they scored record gains last year and I thought we could see more gains as precious metals crept to the upside after consolidation.

Chart 1. Top Silver Stocks: One Stock Lost The Flock

Chart courtesy of tradingview.com

There are top 5 silver mining companies by market capitalization and silver itself (black) in the chart above.

1. Silver Wheaton Corporation (NYSE:SLW) (red)
2. Pan American Silver Corporation (NASDAQ:PAAS) (orange)
3. Hecla Mining Company (NYSE:HL) (purple)
4. First Majestic Silver Corporation (NYSE:AG) (green)
5. Coeur Mining Inc. (NYSE:CDE) (blue)

The chart starts from the reversal point in the silver price at the $15.64 mark on the 20th of December 2016 to track the influence of the metal’s strength in the stocks’ price. By the way, in 2015 silver reversed during almost the same period on the 14th of December, amazing!

Everything looks normal on the chart, the growth of the metal’s price spurred the demand for silver stocks and they gained more than the underlying asset as usually with a newbie on the list, the First Majestic Silver Corporation (NYSE:AG), as a top performer with over 40% gain. Other stocks gained within the 20-35% range except one – the Coeur Mining Inc. (NYSE:CDE).

This stock dropped like a wounded bird from the 9th of February from over 30% gain level down to a negative number at minus 2%. And it is not a coincidence, one day before there was the 4Q 2016 earnings report out with the bad surprise number at 0.01 cents per share versus the 0.11 cents expected. The investors reacted strongly pushing the price heavily down and it lost all after-reversal gains. And I would like to look into a separate chart below to find out if we can find opportunity amid this panic.

Chart 2. Coeur Mining Weekly: Silver Points At The Higher Price

Chart courtesy of tradingview.com

I combined two instruments in the single chart above, the candlesticks of CDE are on the blue background of silver price to show you the correlation of it. And looking at the chart, we can judge that the correlation is very tight. CDE follows the metal’s trail accurately. It even could make a higher relative bottom last December. And then the Black Wednesday on 8th of December with worse than expected earnings report smashed the price.

The price collapsed to the relative price of silver at $17, which is almost one dollar below the recent close and it’s a huge divergence. I think that’s too much and it’s just a fear selling. The falling black trendline resistance was broken at the end of last year and CDE could break above the November 2016 high in January in a bullish manner. The after-report reaction has put the price almost back to the starting line at $8.65 level (December low) where the 50% Fibonacci retracement level sits.

The current silver price points at the $11 level for the CDE price and I think we could achieve it soon. I put the blue rectangle to highlight the area of a potential reversal, which includes 50-61.8% Fibonacci retracement area and the former resistance line (black) within the $6-9 range.

Why do I think the CDE is a strong and worthy company? I put the table below to show you the top 5 silver companies’ fundamentals.

Table 1. Fundamentals

Source: finviz.com

As you see in the table the Coeur Mining is the only one, which has the best P/E and improving Forward P/E ratios, besides that, it is the only company in the list, which has the whole number ROA and almost double digit ROE amid red numbers for almost all the rest. That’s the reason why CDE was the leader among both silver and gold stocks last year with more than 500% gain in the price. The Wall Street is expecting 23.50% Year-on-Year Revenue growth for CDE in Q1 2017, up from -3.05% in Q4 2016.

I think investors overreacted and the CDE is a worthy stock in the mid-term.

Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.