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Eight
Reasons This Sterling "Stock" Is Set To Double
In Price
by Michael Checkan, Investment Advisory Panelist
After working the better part of
four decades in the commodities
business - and living through the ups
and downs of the swinging bear and
bull markets - there's one thing I can
say with confidence today: This is the
Decade of Commodities.
Of course, this comes as no
surprise, since you heard me talk about currencies
and precious metals last month in the July
Communiqué.
But out of all the possible plays in the commodities
markets, silver is the one that holds the
best opportunities in this current market.
And small opportunities they're not.
In fact, silver's story is a compelling one. The
best way to show you the rich potential of this
investment is to put it in the language of equities.
After all, most of us spend a good deal more time
studying stocks...and we can sniff out a good
value when one crosses our path.
So let's put a little fundamental analysis
to
work, and see how silver adds up if we valued it the same way we
do stocks...
How to Get Your Hands on a
Few "Shares" of Silver...
It is not as complicated as you might think. There
are a number of ways to participate in the silver market:
stocks, futures, options, and physicals. However, if
you want to own physical silver, there is one method
of ownership that's particularly good: The Perth
Mint Certificate Program (PMCP).
While the PMCP is an extremely safe, affordable and
flexible way to own all four precious metals, silver
certificates are especially attractive. They remove many
of the traditional obstacles to owning physical silver,
and they offer...
- A cost savings versus
the purchase of fabricated bars and coins.
- Ease of dealing with
a certificate as opposed to taking delivery of the
metal itself.
- Savings on shipping
costs of the silver from the dealer to you when purchasing,
and from you back to the dealer on liquidation.
- No recurring storage
fees for unallocated silver. In fact, there are no
storage fees at all.
- Peace of mind knowing your silver is backed by a
government guarantee from a Standard & Poor's
AAA-rated government, and further backed by private
insurance.
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The Fundamental Story Is Soaring
This illustration is easy to make. All we
have to
do is replace the price-per-ounce of silver for the
price-per-share of a stock. Here goes:
- Currently, the S&P 500 average P/E ratio is about
28. The P/E ratio for silver in 2003 (again, price
per ounce) was a fraction of 1. In fact, it was
much closer to 0 than 1, with $1.30 increase in
"share" price and 880,200,000 "shares" issued.
In this day and age of inflated P/E ratios, most
analysts would agree that a P/E of less
than 1 is a certifiable bargain.
- At roughly $6 per share, silver is now priced at
merely one-eighth of its all-time peak price of
$50 per share. While several industry experts
believe that silver has the potential to achieve
a price of $100 to $150 per share over the next
three to five years, conservative estimates
suggest a doubling in price over this period to
$12 to $15 a share.
- Since March of 2001, silver has experienced an
89% increase in share price ($4.39 per share to $8.32 per share)
and has corrected
61%, to $5.64 a share. Its current price of $6 a
share represents a 37% increase since March
2001. (See the chart below of silver's steady
performance over the last decade, but also for
the recent spike in price.)
- Over the last 20 years, silver has not traded
below $3.50 per share. So downside risk is fairly
limited, despite the significant upside potential.
But That's Only Half the Story...
Consider also that...
- Owning silver is like owning a share of a one-product
company. Normally, this lack of
diversification would be a negative (what's a
company to do when its lead product falls
from favor?), but silver is used throughout a
wide spectrum of industries. And where it is
used, it cannot be replaced. No substitute exists
that combines all of its properties.
- For the past 15 consecutive years, demand for
silver has exceeded production. Current
stockpiles of this irreplaceable product have
dwindled to alarming levels. The situation is so
desperate that silver consumers are purchasing
future production. Some analysts believe that if
all consumers tried to take delivery of this
product, a product for which they have already
paid, there is not enough to fill every contract.
- In addition, demand for silver is beginning to
erupt from new markets. In 2003, the emerging
markets in China, Russia and India all registered
double-digit increases in demand for silver.
- If you believe, as I do, that the dollar will
continue to weaken over the next 3-5 years, the
price per share for silver should be expected to appreciate at
an equal or better pace.
The World Silver Market at a Glance
The summary of the World Silver Survey
2004 was just recently published. It covers worldwide
silver supply and demand statistics for all of
2003. It shows even more research on the value
and market for silver in the coming years.
To read more, just log on to:
www.silverinstitute.org/wssum04.pdf |
These are just some of the reasons why I'm so
excited about the potential for silver.
Supply is extremely inelastic. Demand continues
to increase. The downside is limited, and the upside
potential is strong. And to top it all off, silver's price
thrives on U.S. dollar weakness.
No doubt, silver's story is exceptional. And better
to take advantage of an opportunity before it is
commonly accepted as an opportunity. Right now,
very few people are talking about it...but that's
likely to change soon.
Michael Checkan is president of Asset Strategies
International, Inc., located in Rockville, Maryland. He
is a Pillar One Advisor and available to answer
questions at 301.881.8600 or toll-free 800.831.0007;
by fax at 301.881.1936.
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