Print 
PDF
BookmarkThe Gist
These precious metal stocks were originally on my radar in August. European Central Bank President Mario Draghi stated in July the ECB was prepared to do whatever it takes to preserve the Euro. This advanced the EU currency versus the dollar and created a reflationary trend which sparked a rally in precious metals.
I was bullish on silver and gold before, yet with the latest performance of precious metals coupled with favorable announcements by the ECB and the Fed, I am now extremely bullish. Gold just had the best quarterly performance since 2010.
I believe the stocks and ETFs in this article could continue to have significant moves upward in the fourth quarter. Silver Wheaton Corp. (SLW) is up the most with a 17% gain since my recommendation to buy the stock in an article I wrote on August 24th. The SPDR Gold Shares (GLD) is up 6% in the same time frame. Silver is the high beta version of gold and usually has larger moves relative to gold.
The Goods
These are my top five precious metal plays. Please review the following detailed descriptions of each company or ETF. These investment vehicles provide a diverse set of precious metal plays that are highly correlated to precious metal spot prices. The following charts were provided by Finviz.com.
(click to enlarge)
SPDR Gold Shares
GLD has risen 6% in the last month since my recommendation. The investment seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.
(click to enlarge)
iShares Silver Trust (SLV)
SLV has risen 13% in the last month since my recommendation. The investment seeks to reflect the price of silver owned by the trust less the trust expenses and liabilities. The fund is intended to constitute a simple and cost-effective means of making an investment similar to an investment in silver. Although the fund is not the exact equivalent of an investment in silver, it provides investors with an alternative that allows a level of participation in the silver market through the securities market.
(click to enlarge)
Market Vectors Gold Miners ETF (GDX)
GDX has risen 13% in the last month since my recommendation. The investment seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts of companies involved in the gold mining industry. It is non-diversified.
(click to enlarge)
Newmont Mining Corp. (NEM)
Newmont has risen 14% in the last month since my recommendation. The company is trading 21% below its 52 week high and has 11% potential upside based on the consensus mean target price of $61.94 for the company. Newmont was trading Friday for $56.14, down nearly 1% for the day.
(click to enlarge)
Fundamentally, Newmont has several positives. The company has a forward PE of 11.40. Newmont’s current net profit margin is 8.10%. The company has a PEG ratio of 1.91. EPS is expected to grow by 52% over the next five years.
Technically, Newmont is in great shape. The stock recently fulfilled an extremely bullish double bottom reversal pattern and is now in an uptrend. Newmont’s stock price has recovered substantially over the last month and has been consolidating in the past few weeks. Newmont stands to gain significantly if gold prices continue to climb. The stock is a buy.
Silver Wheaton Corp.
SLW has risen 17% in the last month since my recommendation. The company is trading 2% below its 52 week high and has 13% potential upside based on the consensus mean target price of $44.69 for the company. SLW was trading Friday for $39.81, up nearly 1% for the day.
(click to enlarge)
Fundamentally, SLW has several positives. The company has a forward PE of 18.42. SLW has a PEG ratio of 0.67. SLW pays a dividend with a yield of 1.01% and, according to Finviz.com, has a net profit margin of 73.05%.
Technically, the stock looks great. The stock has bounced off a bottom of $22 in May and is now in a well-defined uptrend. The stock recently performed the coveted golden cross where the 50-day sma crosses above the 200-day sma. This is considered extremely bullish. I like the stock here.
The Bottom Line
I believe these stocks present a buying opportunity at these levels. The ETFs GLD and SLV are the pure plays. Gold has been up 10 out of the last 10 years. As central banks continue to devalue fiat currencies by quantitative easing, gold should march higher in value driving these ETFs higher in the process. With central bank printing presses cranking up across the globe and the cost per ounce to mine precious metals increasing, the upside is substantial. Precious metals are both safe haven plays and hedges against currency debasement risk and inflation.
The deviation between mining stocks and gold is huge by historical standards. In due course, this trend should reverse and the gap will return to normal levels. This is good news for the GDX, Newmont and Silver Wheaton. This should provide an extra boost to their potential upside.
Reviewing my positions on a monthly basis is a part of my usual modus operandi. By going back and seeing why you were right or wrong regarding a stock better prepares you to recognize the next opportunity to buy or pitfall to avoid. If you choose to start a position in any stock, I suggest layering in utilizing quarter sized traunches to reduce risk. Set a 5% trailing stop loss order if you wish to minimize your downside even further.
Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment decisions.
