Pan American Silver Corp. (USA) (NASDAQ:PAAS)

CAPS Rating: 4 out of 5

Engaged in the exploration for, and the acquisition, development and operation of, silver producing properties and assets.


Player Avatar JakilaTheHun (99.93) Submitted: 2/23/2011 1:02:58 PM : Underperform Start Price: $38.98 PAAS Score: +6.70

I am re-initiating my red thumb on PAAS, now that it has spiked again. Here was my original pitch:


Call me crazy, but I'm going to dip my feet in on red-thumbing the metals sector, which is getting increasingly overheated by the day. My big issue is that I like the long-term fundamentals of a lot of metals, but much of the increased prices right now are being driven by speculative investment interest, rather than hard economics.

So why have I decided to pick on PAAS first? Well, first off, there's very little inside ownership. I'm much less likely to red thumb a business where the owners have a major interest in seeing it succeed.

The next issue --- PAAS seems to be valued very aggressively. It's true that PAAS has a good deal of low-cost mines, but even with gold and silver prices at high levels right now, they only churned out 27 cents per share in earnings for the quarter. Let's assume they can double that and then annualize the result --- that gives us earnings of about $2.16 per share. Even going by a P/E multiple of 15, that gives us a price of $32.40, which is about a 10% discount to the market's current valuation.

The other reason I've decided to pick on PAAS --- I'm more leery of red thumbing platinum and palladium, which are in short supply world-wide.

There's also the issue that many people are buying silver and gold, because of a poor understanding of monetary policy. I keep hearing investors flocking to these hard assets because of the coming hyperinflation resulting from the Federal Reserve's policies. Inflation right now is about 1%. It's well below the historical standards and even that is mostly being driven by the boom in China and the emerging markets.

One final reason to red thumb PAAS --- it's involved with both gold and silver. That's good because if the economic environment improves, gold will suffer; whereas, prospects for silver could improve as a result of increased industrial demand. Conversely, if the economic environment gets worse, gold might continue to move upwards, but industrial demand for silver will be undermined. Maybe the market is right about gold or right about silver; but I don't think it's right about both.

Report this Post 3 Replies
Member Avatar jwebbzor (< 20) Submitted: 3/1/2011 10:30:22 AM
Recs: 0

Gold and Silver speculation has just barely begun.

Member Avatar lambergino (< 20) Submitted: 3/6/2011 11:30:52 PM
Recs: 1

You are going to be bankrupt if you short anything Silver right now. Watch and see, it will be $100/oz by end of year which means all mining stocks will RALLY starting ... NOW !

Member Avatar valuemoney (< 20) Submitted: 11/15/2011 11:01:07 PM
Recs: 0

I like the idea red- thumbing anything to do with gold or silver.

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