CAUTION: Don’t Buy These 2 Rallying Metal Stocks Right Now

The shares of Silvercorp Metals (TSX:SVM)(NYSE:SVM) and Silvercrest Metals (TSX:SIL) saw a sharp rally after analysts raised their target prices. Let’s discuss whether you should buy these metal stocks right now.

| More on:
Businessman pulling out wooden brick from toppling stack

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The S&P/TSX Composite Index started this week on a mixed note after posting gains for the previous three weeks in a row. This morning, the Canadian stock market benchmark was trading with a minor 0.1% gains. As investors continue to remain focused on updates related to the COVID-19 vaccines, the broader market is expected to trade with heightened volatility.

The ongoing pandemic is continuing to make Bay Street analysts raise concerns about the future growth of most of the businesses. However, some businesses remain largely unaffected by the pandemic, and analysts are turning positive on these companies. Let’s take a closer look at two such Canadian companies and discuss whether you should buy these stocks.

Bay Street analysts on Silvercorp Metals

This morning the shares of Silvercorp Metals (TSX:SVM)(NYSE:SVM) rose by 5.4%. It’s a Vancouver-based precious metals company with a market cap of $1.56 billion. On July 16, the company released its first quarter of fiscal 2021 production results. In the quarter ended June 30, Silvercorp’s coal mining activity dropped by 1% year over year (YoY), while its silver production fell by 10% to 1.8 million ounces. On the positive side, Silvercorp Metals Q1 lead and zinc production witnessed a rise of 1% and 4% YoY, respectively.

It’s important to note that the company is primarily focused on China. Henan and Guangdong — the two Chinese provinces — made up about 83% and 17% of its total fiscal 2020 revenue, respectively.

Earlier today, analysts at Eight Capital raised their target price on Silvercorp stock to $9.25 from $7.1. Eight Capital’s new target price reflected about 2.7% upside potential in silver crop stock from its Friday closing price of $9.01.

Silvercrest Metals rallies by over 10%

The shares of Silvercrest Metals (TSX:SIL) — another Canadian metals exploration firm — rallied on Monday. Its stock was up by 10.4% at 12:11 PM ET today — as compared to a 0.3% rise in the TSX Composite benchmark. Eight Capital also raised its price target on Silvercrest’s stock to $14.75 from $10, triggering a buying spree. The investment firm’s new target price on the company reflected about 20% upside potential from its Friday settlement price of $12.28.

Should you buy these stocks?

I find metals stocks to be a safe bet amid the ongoing pandemic. However, the shares of these two companies seem to be in the overbought territory right now. While Silvercorp Metals has risen by 90.9%, Silvercrest Metals has seen a 55.4% rise in the last three months. By comparison, the TSX Composite Index has risen by only 12.3% during the same period.

As the ongoing pandemic gradually subsides in the coming months, investors might divert their attention from metal stocks to other cheap stocks based on valuation. This could make these metal stocks shed some of their gains. These are some of the reasons why I would highly recommend that you be cautious and follow strict risk-management rules if you plan to buy these stocks at current levels.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

More on Coronavirus

Business success with growing, rising charts and businessman in background
Coronavirus

1 Growth Stock Every Canadian Investor Should Consider Right Now

This growth stock saw shares pop 10% on June 20, as one analyst stated there is a significant opportunity to…

Read more »

Aircraft wing plane
Coronavirus

Bombardier Stock Merge: What it Means for Investors

Bombardier (TSX:BBD.B) stock went through a reverse stock split on June 13, turning 25 shares into one in one swift…

Read more »

Aircraft wing plane
Coronavirus

Air Canada (TSX:AC) Stock: Ready to Take Off?

While Air Canada is handling what it can control really well, there are many worsening macro headwinds that will likely…

Read more »

rail train
Coronavirus

Bull or Bear: Why Analysts Changed Their Tune on Aecon Stock

Analysts had been champing at the bit for the construction company, but the tides have turned.

Read more »

Biotech stocks
Coronavirus

Is Bellus Health Stock Still a Buy After 30% Earnings Jump?

The biotech continues to make progress on obtaining FDA approval for its chronic-cough therapy.

Read more »

grow dividends
Coronavirus

Goodfood Stock Likely to Double in 2022!

Goodfood (TSX:FOOD) stock has had a huge rise and fall in the last few years. But at $1.85 a share,…

Read more »

grow dividends
Coronavirus

Canfor Stock Pops 5% as Sales Climb 15% YOY

Canfor (TSX:CFP) stock remained positive about its future in the global lumber market after profits climb 15% year over year.

Read more »

edit Safety First illustration
Coronavirus

2 Crash-Proof TSX Stocks I’d Buy With $5,000

These two TSX stocks have proven they can handle this economic downturn and likely will continue to be safe far…

Read more »