Silver Standard Resources Inc. (USA) (NASDAQ:SSRI) had a great first quarter, increasing earnings per share 54.5% from last year, and beating analyst’s forecasts. President and CEO Paul Benson noted that this was this sixth quarter in a row that SSRI increased its cash position.
Yet the stock is up only 9.4% year-to-date. And SSRI stock is still 38% off its 52-week high. Investors might be ignoring this stock at their peril, since silver will probably do well in the years to come.
Here are some reasons to buy Silver Standard Resources stock after earnings.
Reason No. 1: SSRI Stock Fundamentals
First, Silver Standard Resources stock looks great, and this is with a low price of silver; silver is about two-thirds down from its 2011 peak. Imagine what would happen to SSRI stock if silver saw 2011 prices again!
Silver Standard has low debt, and its current ratio has increased, signaling improving liquidity. SSRI also has a high Piotroski F-Score, suggesting a strong financial position.
And SSRI is conservatively valued. It trades at 2.24 times cash, 8.68 times free cash flow and 1.3 times book value.
Reason No. 2: Trump/Inflation
The yield curve recently flattened, signaling lower inflation expectations, but I think it would be foolish to rule out the possibility of inflation over the next few years. The past two presidents have increased the national debt, and the Donald Trump administration will probably also run budget deficits.
His plan to cut taxes will probably increase the budget deficit, at least in the short run. Budget deficits lead to a growth in the money supply, causing inflation.
During times of inflation, it’s best to put money into hard assets, such as gold and silver. It’s easy for the government to increase the money supply — all it has to do is run the printing press — but the government can’t make silver appear out of thin air.
Gold and silver did well during previous periods of high inflation, such as the 1970s. Under the post-World-War-II Bretton Woods monetary system, gold had been convertible at a rate of $35 per ounce. But Nixon closed the gold window in 1971, and the spot price for gold went through the roof, going as high as $850 an ounce in 1980.
But why silver and not gold? Well, Jim Rogers, one of the greatest investors of all time (his portfolio rose 4,200% from 1970 to 1980), said earlier this year that silver is cheaper than gold relative to historical levels. He is right; the silver to gold ratio has historically averaged 15 to 1, that is 15 ounces of silver per ounce of gold, but now it is over 70.
The price of silver will probably go up, which will be good news for Silver Standard Resources.