Hi-yo Silver, Away!

Investor’s Digest of Canada columnist Jeana Deal may not own a horse named Silver nor a six-shooter loaded with silver bullets. But she does think it’s time to saddle up for a silver bull market. She names four of the world’s top silver stocks that will prepare your portfolio’s defences against the next financial crisis.

Since 2009, investor sentiment has been cautiously optimistic. The conservative investor might even describe this seven-year bull run as precarious.

The global economy and markets have been buoyed by the unconventional practices of quantitative easing (QE) and low-to-negative interest rates. Such rates create less desirable prospects in the bond market and encourage more borrowing to stimulate investment in the cyclical sectors and real estate. This has also resulted in disconcertingly high levels of consumer debt.

Each time the U.S. Federal Reserve is scheduled to announce its rate forecasts, investors brace themselves in anticipation of a shift in monetary policy.

At the time of writing, the Bank of Japan had yet to announce the results of its policy meeting, shortly ahead of the FOMC (the Federal Open Market Committee, which sets the Federal Reserve’s monetary policy) announcement.

The market outlook will very likely continue to be bullish if the policies all around remain unchanged. There also exists the chance that the Fed will finally unveil a rate cut, which will send the markets up again.

Moving the interest rates towards zero will only create shallow benefits in the short term, forcing investors to keep running with the upward trend. Investor optimism will become even shakier.

A hint of impending change could precipitate the correction we have all been nervously waiting for.

If the policies remain unchanged, then our next concern will be how the markets react to the results of the U.S. presidential election.

At some point, the interest rates must go up. The question is whether a series of rate hikes or easing off of QE will set off a long-term bear market or even a return to a global recession similar to the last one we experienced.

As analysts diligently search for signs of the next major reversal in the markets, many investors still holding fresh memories from the 2008-09 recession are preparing themselves for what could be another financial crisis.

Adopt a defensive investment strategy

While jumpy investors might be at the ready to unload their shares at the slightest whiff of policy change, I recommend thinking ahead and considering shifting the weight of your investment portfolio towards defensive assets.

You could manage your uncertainty by considering the traditional safe haven investments in stable currencies, treasuries and the precious metals.

I have got my eye on the metals as I anticipate their value will increase over the next few years. As I am most comfortable with stocks, my diversification strategy lies with investing in the mining stocks that produce these materials, rather than owning the physical assets.

If you would prefer to reduce your exposure in stocks, then consider buying actual bars or coins of gold or silver, as long as you can keep them somewhere safe.

After coming down off the highs of 2011 and being relatively quiet the last three years, the precious metals have been back in play, being big market standouts so far this year.

I am sure many investors made most of their money in the first two quarters in the metals.

Bull market for gold and silver stocks

While I am already long in a gold stock, I regrettably missed an early entry on the first move on silver. When I look at the charts for gold and silver stocks, I see a bigger bullish move to come.

Right now, there is a healthy correction happening in the metals, so I am anticipating a new opportunity for a good technical entry in silver around the corner.

Canada boasts some of the world’s top silver-producing companies. With many to choose from, I will focus my analysis on those currently trading on the TSX with the most share volume. I will go in order, starting with the silver mining stock that has the best year-to-date performance.

Four silver mining stocks to buy

First Majestic Silver Corp. (TSX—FR) had a huge year. Before I continue, I will disclose that although I personally know Keith Neumeyer, the president, CEO and founder of this company, I am not a shareholder. (However, I truly wish I were).

First Majestic had an incredible ascent from January’s end until mid-August, when it started to pull back. It is now consolidating at support levels from June and if it can hold here for another week or so, it looks ready to go up for another run over $16.34 (or over $15.69 for an anticipatory entry). If this stock takes off again, it should hopefully push past the 2011 high of $25.79.

Meanwhile, Fortuna Silver Mines Inc. (TSX—FVI) is near its all-time high of $12.73, with a shallow pullback to previous support levels. If it can hold here, an ideal entry would be more than $10.06, where it previously experienced heavy selling volume on Sept. 16.

It could have some difficulty getting through the low-$12 zone where it consolidated in August, but the resumption of silver’s overall trend should help this stock.

The chart of Pan American Silver Corp. (TSX—PAA) is looking confident on a trend line starting from February. If the company can stay in this pattern, I would consider an entry over $23.08.

Silver Wheaton Corp. (TSX—SLW) is consolidating on a trend line above previous support levels and is close to previous highs from 2011 and 2012. These previous highs could become resistance points that will impede the stock’s ability to go higher.

On the other hand, if the precious metals get another bullish push, this could go past all that and create new and exciting highs.

Eventually, the inflated optimism will burst and printing money and setting near-zero interest rates will no longer be sustainable practices.

Fundamental changes must happen to prevent a huge financial upset on a global scale. Having a defensive investment strategy has never been more important.

Get ready now and you will be grateful for having taken your lower-priced positions early on.

Jeana Deal is the author of Loonie to Toonie: Financial Basics for Canadians. She lives in southern Ontario and trades and invests in Canadian and U.S. stocks for her own investment account. Visit her website loonietotoonie.com where you can read more about her investment ideas in her newsletter, The L to T Weekly.

 

Investor’s Digest of Canada, MPL Communications Inc.
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