After falling 4-6% two weeks ago, the S&P 500 and Nasdaq bounced back by 2-3% last week. Quite the whipsaw! By week’s end the S&P 500 had gained 2%, the Dow had risen marginally, and the Nasdaq had added 3.3%.
The Stock – Pan American Silver (PAAS)
Silver has long enjoyed the reputation of being the so-called “sister” precious metal—and it typically benefits from strengthening gold demand due to its cheaper price. But silver also plays a pivotal role in the worldwide energy transition, owing to its excellent electrical conductivity (the highest of all metals, in fact) and widespread use in applications ranging from wind and solar energy production to electric vehicles and other industries associated with alternate energy.
This is one of the key drivers behind the strength in Pan American, which is one of the world’s biggest silver producers, as well as a miner of gold, zinc, lead and copper, with operations in several countries throughout North and South America.
Financial results for the company were mixed in Q4, as revenue of $670 million soared 78% from a year ago (thanks to its buyout of Yamana Gold), but the per-share loss of four cents missed estimates by 13 cents. However, silver prices have exploded to three-year highs in recent months, which is expected to dramatically boost profits going forward; Pan American guided for all-in sustaining costs (AISC, a key metric) for its silver segment to average $17.25 per ounce this year, which is $10 below current prices.
Meanwhile, the company’s AISC for the gold segment is projected to be around $1,525 per ounce, while total production of around 22 million ounces of silver and close to one million ounces of gold is pegged for 2024, with the second half of the year projected to exceed the first half in terms of output.
At a recent investor conference, management reiterated its positive year-ahead outlook based on what it sees as rising industrial demand for silver, coupled with increased investment-related buying for both silver and gold, likely keeping prices elevated. The sanguine outlook also prompted a Wall Street institution to include Pan American on its list of top silver mining stocks (a reason for the stock’s strength). After a couple of barely profitable years, the bottom line is expected to start pushing higher later this year and surge into 2025. The Q1 report is due out May 8.
Technical Analysis
PAAS spent a good chunk of last year treading water within a six-point range despite some upside in silver prices. The stock actually hit new lows in February, but it’s been all up since then, with shares moving back above the 200-day line in late March, kicking off a beautiful, big-volume run higher that met resistance around the 20 level. The two-week rest since then has been classic, with PAAS trading tightly and giving up little ground. Stop — 15.8
The Covered Call Trade
Buy Pan American Silver (PAAS) Stock at 18.75, Sell to Open June 19 Strike Calls (exp. 6/21) for $1, or a Net Price of 17.75 or less
Static Return: $100 per covered call (5.63%)
Breakeven: 17.75
Covered Call Return (if assigned): $125 per covered call (7.04%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 17.75 or less. (In this case, 18.75 minus 1 = 17.75. Or, another example is you could pay 19 for the stock and sell the call for 1.25, which also equals 17.75.)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Permian Resources (PR) | 16.7 | 17.4 | 14.2 | May 17 - $0.75 | $1.00 |
| Toast (TOST) | 24.05 | 24 | 20 | May 25 -- $1.75 | $1.50 |
| CNX Resources (CNX) | 23.9 | 24 | 21 | May 24 -- $1.08 | $0.60 |
| Eldorado Gold (EGO) | 15.45 | 14.8 | 12.7 | May 16 -- $0.70 | $0.20 |
| Coupang (CPNG) | 22.2 | 23 | 18 | May 22.5 -- $1.20 | $1.40 |
| SweetGreen (SG) | 21.8 | 24.25 | 18.5 | May 21 -- $2.30 | $4.00 |
The next Cabot Profit Booster issue will be published on May 7, 2024.
Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.
