Silver prices have given up about 10% in the last month, and the metal and its miners are now looking seriously oversold. One that interests me is Silver Standard Resources (SSRI), which explores for and develops silver and silver resource dominant mineral projects throughout the Americas. The silver correction has translated into a 30% collapse in SSRI over the last five weeks. Whenever this has happened before in the last few years, SSRI has lifted substantially within a matter of weeks.
Most of SSRI’s decline, of course, is the logical impact of declining precious-metal prices. Could silver prices keep sinking? Yes, they could. We could see the physical price dip another 10% or so. However, unless this is a once-in-a-generation rout, which is extremely unlikely, we have probably seen the worst in the precious metals market for a while. Remember, silver is still an industrial metal – stockpiles are depleted as it is incorporated into finished products, so supply and demand provide a hard floor on how low prices can go. This is not gold, where the speculators and pure “financial” interests have complete control.
Before the 10% haircut last month, SSRI had a book value of $10.43 per share. Knock off 10% or even 20% if silver falls a bit more, and these shares look undervalued in terms of assets to price. Down here under $7, SSRI only has to recover to 80% of book value ($8.34) to make traders good money.
I expect that recovery for a couple of reasons. One is that Wall Street expects SSRI to swing back to profitability in the current quarter or, if metal prices are truly suffering, in the next three months. That kind of profitability catalyst is one I like to exploit, because it forces investors to radically revise their vision of where to position a stock in their overall universe.
In addition, full-year earnings consensus needs to come up about $0.05 to reflect improved quarter-to-quarter targets. Since those targets have changed for the positive since silver prices started sliding, my sense is that analysts are writing off the current metal weakness as a temporary phenomenon and not a trend. Either way, most now think SSRI will turn profitable when it reports in early November.
Between here and there, the chart truly looks oversold and is now at a point where nice bounces have occurred in the past. I dug into the last three years, and this was the sixth time SSRI has seen its relative strength index (RSI) dip below 30, a point that traditionally indicates a stock has lagged the market too far and is now ready to return to average performance. Every single time that has happened here, SSRI has rebounded 20% to 50% off its lows in the next few weeks.
Hilary Kramer is the editor of several financial advisory services designed to help individual investors profit from her stock picking talents — including Hilary Kramer’s GameChangers, Breakout Stocks Under $10 and High Octane Trader.