The week around Thanksgiving typically has light trading volume, but positive price action in the stock market. Of course, in this kind of environment, anything can happen. Europe’s sovereign debt crisis continues to hold the U.S. equity market hostage, and institutional investors remain unwilling to make any bold moves in the stock market.
As an investment theme, I believe that the commodity price cycle will be a key trend this decade. The fundamentals are there to support higher prices for precious metals, agricultural commodities, and oil. Even in a world of declining expectations, demand for commodities is rising while supply is stagnant.
In my view, there’s no other industry that’s better set for increasing profitability than precious metals. The stock market is certainly not dominated by gold or silver stocks, but, sector-wise, this area continues to offer equity speculators the best bang for their buck. And now there’s a new trade that’s developing and it’s in silver stocks.
We just had a good new entry point for gold and most gold shares experienced an upward bounce in October (if you want to see the spot price action of gold reflected in a stock, just follow Yamana Gold Inc., NYSE/AUY.) But, right now, one of the more attractive trades I see coming in the stock market is with silver stocks. The universe of silver stocks is very small and the commodity itself is underperforming gold.
Like all precious metal stocks, share prices follow the spot price of the commodity, even if a company is generating exceptional financial growth. Silver stocks have been trending lower since May, commensurate with the spot price, and valuations are now becoming very reasonable. It’s a trade that’s not quite actionable, but it’s getting close. Once the spot price of silver turns, silver stocks should outperform gold because of the disparity that exists between the two commodities.
October’s gold trade worked out and was especially good considering the trading action in the rest of the stock market (see PC-09-30-11 Third Quarter Ends The Correction Phase—Spot Price Of Gold Looks To Be Bottoming). The spot price of silver just broke through (to the upside) its 30-day moving average and is slowly getting closer to its 200-day moving average. And, if you follow commodities daily, you’ll know that the percentage change in silver’s trading action is increasingly greater than that of gold. To me, these very are positive signals. With most silver stocks now sporting very attractive valuations, I think they’re going to be the stock market’s next best trade.
The Stock Market’s Next Best Trade Is Shaping up was last modified: December 23rd, 2011 by Mitchell Clark, B.Comm.
Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »
Forecasts Aug. 30, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 30, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)