The global financial cycle has a few tail ends, and the two are typically divided between stocks and commodities. When one performs, the other tends to underperform, with currency performance in the middle of the price action. Today, the dollar index has retreated from its recent highs, causing the price of dollar-quoted commodities to rise toward new all-time highs.
One of the main basic materials catching a lot of attention is gold. Gold prices are now at a new all-time high, which is a vote of no confidence in the dollar as the S&P 500 starts to slow down near its highs, especially after the Japanese Yen-induced sell-off a few weeks ago. Gold is likely to see a few late buyers, or laggards, so to speak, as they realize that there is still potential upside in the precious metal.
However, this is where the scale of risk to reward loses momentum, as laggards tend to be late to the party and have much more downside than upside. For this reason, silver could be a fundamental and even statistical alternative for investors to tap into this trend. Through the iShares Silver Trust (NYSEARCA: SLV), diversification can be achieved, though two other stocks stick out to deliver a bit more concentrated price action.
A Relative Strength Trade Poised for Investors to Capitalize On
Comparing the iShares Silver ETF against the SPDR Gold Shares (NYSEARCA: GLD), investors will notice a great divergence to create a massive opportunity in the coming months. Statistically speaking, these two have over 87% correlation in their prices, so they should move together relatively closely over time.
Recently, however, this pattern has broken. While the gold ETF has rallied 11.7% over the past six months, the iShares Silver ETF has lagged, gaining only 5.6%. Despite this underperformance, the momentum appears to be shifting in favor of silver. Over the past month, silver has started to close the gap, and the strong historical correlation between the two suggests that silver may have room to catch up.
Silver has had a 10.9% run against gold’s lagging 4.4% in the past month. This trend could continue for a bit longer as the historical divergence between the two needs to be narrowed down. Upcoming events in the stock market, like the Federal Reserve (the Fed) meeting on interest rates, could spark another run in silver.
While this is a stable enough play for investors, it is a pretty diversified view through ETFs. Some need to squeeze a little bit more upside and aggressive positioning before the year ends, which is where two other individual stocks could come into play as a potential consideration.
Hecla Mining's Earnings Growth Poised to Deliver the Upside Investors Crave
Hecla Mining (NYSE: HL) is now trading at a new 52-week high, but Wall Street analysts think there is much more room to keep moving higher. The forecast is now set at 125% earnings per share (EPS) growth for the next 12 months, which should be enough to bring the stock to a new all-time high.
This new insight has led those at HC Wainwright to place a price target of up to $10.25 a share for Hecla mining stock, directly calling for as much as a 50.3% upside from where the stock is trading today. Other technical indicators show more potential in this name as well.
Over the past quarter, Hecla Mining stock’s short interest has declined from $115 million to $79 million today, showing investors a new sign of bearish capitulation and opening more room for bullish investors and traders to take their place in Hecla Mining stock.
These bullish investors, such as B. Riley Wealth Advisors, decided to boost their holdings in Hecla Mining stock by as much as 4.9% as of August 2024, bringing their net investment up to $5.9 million today. This is only a drop in the bucket compared to the $183.2 million of institutional capital that made its way into Hecla Mining stock over the past 12 months.
Institutional Buyers Favor Pan American Silver Stock at Its Current Discount
Compared to Hecla Mining stock’s new high, shares of Pan American Silver Corp. (NYSE: PAAS) only trade at 87% of their 52-week high, creating a potential discount to its peers and for investors to take advantage of in the coming months as silver begins to catch up to gold prices.
To spark the price action needed for the stock to catch up to its peer Hecla Mining, Wall Street analysts have forecast up to 116.9% EPS growth in the stock for the next 12 months. Leaning on these outlooks and optimistic price action, those at CIBC decided to boost their price targets during the past quarter.
Going from their previous valuation of $30 a share up to $35 a share is not only a 16.7% boost in price targets but also represents a net upside of 65% from where the stock trades today. More than that, Pan American Silver stock’s short interest has declined to only 2.4% of the overall float, showing a lack of interest coming from the bearish side.
From these trends, institutional investors like the Vanguard Group have decided to boost their holdings in Pan American Silver by as much as 1.2% as of May 2024 before the massive silver rally started, bringing their net investment up to $199.4 million today or 3.6% ownership in the company.
