Guess whichcommodity has performed the best during the past 10
years. Is it corn, its price spiked by ethanol production and the
drought? Copper needed by China for its infrastructure build-out?
Cattle, with overseas markets demanding higher quality protein?
The answer may surprise you: It's silver.
According to the U.K. Bank Lloyds TSB, silver has risen 572%
since 2002. In comparison, the next largest commodity increase is
gold, which is up 428% during the same period.
Silver's appeal is two-fold. First, it's seen as an investment
safe-haven. Second, the precious metal is an excellent electrical
conductor. As a result, silver is increasingly being used in
industrial applications, such as electrical components for circuit
parts and medical devices.
In the recently completed third-quarter, silver rose 25% an
ounce. European and U.S. stimulus measures helped boost the
precious metal and traders fled to it for safety from potentially
One particularly attractive looking silver company is a Canadian
midcap silver miner,
Endeavour Silver (NYSE:
. Since it began publicly trading in 2004, the company has
increased its silver reserves and production every year. It also
mines a small but growing amount of gold.
Currently, EXK has three producing silver mines in Mexico -- one
of the more politically stable countries for silver mining in the
world. It purchased its third mine in April, a move that doubled
the company's proven and probable silver reserves. It also caused
its gold reserves to rocket 477%, to 390,000 ounces.
Moving forward, management plans to enhance mining operations,
expand exploration and reduce costs. With strong potential for
increased production, Endeavour's fundamental and technical outlook
As the chart shows, the stock was in amajor uptrend from August
2010 until September 2011.
In late September 2011,shares retreated from a multi-year high
of $13.10, to a low of $7.55 in late spring. The break of the major
uptrend line also saw the beginning formation of amajor downtrend
line, which lasted almost a year. On the positive side, shares
established a solid wall of support in the low-to-mid-$7 range.
In late August 2012, the stock bullishly broke the major
downtrend line. Shares continued to climb, reaching a peak of
$10.73, before retreating.
The stock is currently trading in the high $8 range, presenting
a potential buying opportunity. At current levels, the stock has
plenty of room to run before hitting resistance around the $12.75
range, representing 44% potential gains.
The bullish technical outlook is supported by strong
fundamentals. Third-quarter revenue jumped 34% from the comparable
year-ago period, to $51.9 million. Higher metal production and the
sale of some of the company's bullioninventory contributed to the
gain. For the full 2012 year, analysts' project increased silver
production will push revenue up 82.4% to $230.9 million, from
$126.6 million in the year-ago period.
For the third quarter, silver production increased 33% from the
year-ago period, to 1.1 million ounces, and gold production
increased 139% to 11,700 ounces.
With greater production, full-yearearnings projections are
strong. Analysts expect full-year 2012 earnings to surge 209% to
$0.68 per share, from $0.22 per share last year.
The company also has a strongbalance sheet , with $131.6 million
in cash and nolong-term debt . This cash gives Endeavour the
financial freedom to continue exploring and to acquire new
In addition to purchasing the stock, you can earn extra income
by writing covered calls. The May 2013 $12.50strike price options
are currently trading around $0.45. By writing the options, you
reduce thecost basis of the trade to the mid-$8 range, as well as
increase theprofit potential by essentially getting paid an instant
5% "dividend ."
Risks to consider:
Silver is volatile and correlates with the overall "risk on"
trade. An implosion in Europe, which would turn investors cautious,
couldmean a retreat in silver demand and silver stocks. However,
Endeavour is increasing reserves and production and should be able
to weather the storm.
Action to Take -->
Buy EXK at themarket price . Set stop-loss at $7.16, slightly below
support. Sell one EXK May $12.50 Call for every 100 shares
purchased. If $12.50 Call for every 100 shares purchased. IF $12.50
strike price is hit, surrender the stock and buy back thecall .
This article originally appeared on TradingAuthority.com:
Collect a 5% Instant 'Dividend' on a Trade That
Could Make You 40%
-- Dr. Melvin Pasternak
Melvin Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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