Goldcorp Inc. (TSX:G)(NYSE:GG) is down 0.66% today to $18.07, which may have some folks eyeing the stock in light of its recent announcements. Meanwhile, Fortuna Silver Mines Inc. (TSX:FVI)(NYSE:FSM) is up 0.28% to $7.20, as silver stocks continue to oscillate. But like most silver stocks on the TSX, it’s still fairly cheap.
So, are these stocks a buy? Let’s take a closer look.
Can junior miners offer contrarian value opportunities?
Cash flow issues may have some market observers calling for stalled gold and silver bulls, and with the recent imposition of U.S. tariffs on Canadian metals, people might be steering clear of commodities for a while.
But this offers contrarian investors opportunities to snap up some prime stock while value slips. The trick, though, is to identify where that value really lies.
On the face of it, Goldcorp and Fortuna Silver Mines might look like fairly similar stocks. But dig a little deeper (yes, that’s a mining joke), and you’ll see that one stock might be a better buy than the other.
Read on to see which of the two should be added to your mining cart this summer.
A pair of potentially profitable picks?
Goldcorp is coming through with some interesting expansion. It was announced this month that Goldcorp had made a deal with three Ontario First Nation communities to develop Borden Gold, with the first sample due at the end of the summer, and full commercial operation kicking off next year. It has also announced a $0.02 dividend per share, which might be a sign of things to come.
Fortuna Silver Mines also has a few things going for it that might counter any qualms that mining investors may be having at present. For starters, it’s not overvalued (although it’s not undervalued either), which is good news if you’ve been eyeing the stock for a while. It’s good value, too, based on earnings and weighted against the sector average, with a P/E ratio of 13.1 times.
With revenue set to grow at over 20% per year, you could also say that Fortuna Silver Mines is a moderate growth stock with potential upside. With a 9% return on assets, it’s a stock with a strong management style, and its assets are also 6.7 times its debt, which is a pretty clear indicator of a healthy stock.
Having minerals and mining stocks in your portfolio is always a good idea, since the mining sector makes up so much of the stability offered by the Canadian economy. The main thing to bear in mind is whether you want to be able to sell high down the line or earn a dividend (or both), so make sure that whichever stock you go for does what you want it to.
The bottom line
You may want to bet on silver before fortunes for the grey stuff pick up down the road. The market might look rocky now, but there’s only so much that bad news can do to shake actual demand in the real world. Fortuna Silver Mines certainly offers an interesting stock pick, so if you fancy adding it to the commodities section of your portfolio, then go ahead, while Goldcorp also has potential for growth. You could always add a few other silver stocks if you want to spread your exposure to precious metals ahead of a potential bull market.
