The holiday-shortened week was mostly quiet outside of the AI/Semiconductors plays, which once again rose nicely. As for the rest of the market, by the numbers below it was a good week, though under the surface it feels like not many stocks are truly rallying.
For the week, the S&P 500 gained 1.35%, the Dow rose marginally, and the Nasdaq added another 2.9%.
The Stock – Pan American Silver (PAAS)
The “electrification of everything” trend is dramatically boosting electricity demand but is also putting a tremendous strain on the electrical grid. The more recent buildout of AI data centers is further adding to this strain, as artificial intelligence requires up to 10 times more electricity (!) than a typical Google search. This is where Pan American comes in, as its main product, silver, plays a critical role in this buildout due to its excellent electrical conductivity (the highest of all metals), not to mention its widespread use in applications ranging from wind and solar energy production to electric vehicles and other alternative energy sectors.
Pan American 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. Management guided for silver production to expand in the coming months, as global demand for the precious metal strengthens. Specifically, company-wide silver production is expected to increase by more than 15% in the second half of 2024, while gold production should come in at similar levels.
In Q1, Pan American reported revenue of just over $600 million, which was up 54% from a year ago thanks to an increase in gold and silver ounces sold and, of course, higher realized metal prices. Earnings of one cent didn’t wow anyone, but they did beat estimates by seven cents while cash flow from operations more than doubled. All-in sustaining costs (AISC, a key metric) for silver were $15.89 per ounce for silver (versus the current price of $31.50) and $1,580 for gold (versus the current $2,400)—and, more important, these metrics are expected to fall substantially in the second half of the year, with Pan American’s gold and silver AISC falling to $1,525 and $13, respectively.
Translation: Margins should soar going forward, and that prompted a major bank to single out Pan America as a top pick for investors wanting silver exposure (a reason for the stock’s strength). Analysts see the bottom line booming from low levels this year and then doubling in 2025, and those could prove conservative if the precious metals bull market continues.
Technical Analysis
PAAS finally busted loose from its multi-year bear market in February, bottoming near 12 for a couple of weeks and then quickly turning the corner, zooming higher for three straight months before running out of steam at the end of May near the 23 level. The dip that followed last month was reasonable (15% deep), with the stock finding support just under the 50-day line and giving back only a small amount of the prior rally. And now PAAS is perking up again, rallying in sympathy with silver prices. Stop – 19
The Covered Call Trade
Buy Pan American Silver (PAAS) Stock at 22, Sell to Open August 22 Strike Calls (exp. 8/16) for $1, or a Net Price of 21 or less
Static Return: $100 per covered call (4.76%)
Breakeven: 21
Covered Call Return (if assigned): $100 per covered call (4.76%)
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 21 or less. (In this case, 22 minus 1 = 21. Or another example is you could pay 21.75 for the stock and sell the call for 0.75, which also equals 21.)
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 |
| Pinterest (PINS) | 41.5 | 44 | 35 | July 41 -- $2.75 | $3.00 |
| Dutch Bros (BROS) | 36.35 | 43 | 31 | July 37.5 -- $1.65 | $5.50 |
| Sweetgreen (SG) | 30.45 | 26 | 25 | July 32 -- $2.10 | $0.10 |
| Howmet Aerospace (HWM) | 83.15 | 80.5 | 74 | July 85 -- $1.90 | $0.15 |
| Guardant Health (GH) | 30.75 | 27 | 24 | July 30 -- $2.40 | $0.30 |
| Hims & Hers (HIMS) | 23 | 20.5 | 17.7 | July 23 -- $1.85 | $0.10 |
| Carnival (CCL) | 17.75 | 17.75 | 16 | August 18 -- $0.85 | $0.75 |
The next Cabot Profit Booster issue will be published on July 16, 2024.
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