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Bear of the Day: Pan American Silver (PAAS)

Eric Dutram

With stock prices at record highs and some brewing optimism over the economy at large, there has been little demand for safe haven investments. This trend has been devastating for many precious metal mining companies, leading to huge losses for these firms in 2013.

Unfortunately, this trend could continue despite some worries over another summer slowdown. After all, the dollar remains quite firm against global currencies and this could remain true after the recent ECB rate cut, and Japan’s impressive effort to weaken the yen as well.

These factors suggest that many precious metal mining companies should still be avoided by many investors, and especially so in the short term. And nowhere is this more the case than in the volatile silver mining world with Pan American Silver (PAAS).

Pan American in focus

This important silver miner has had a horrendous start to the year losing more than 30% of its value in just the first four months of 2013. Longer term trends are even worse, if you can believe that, as PAAS has declined by over 60% in the past two years.

Yet before you start thinking this is now a deep value stock, you should consider the earnings estimate trend for the embattled company. Analysts seem to be in complete agreement on the company’s lackluster future, as current year EPS growth stands at an anemic 3%.

Estimate Picture

Beyond this low level of growth, investors should also note that the consensus estimate trend has also been moving in the wrong direction. The current quarter consensus has moved from 42 cents a share 90 days ago to just 31 cents a share today, while the current year has gone from $1.80/share to just $1.30/share in the same time frame.

These terrible figures have helped to push the Zacks Earnings ESP figure to extremely bearish levels as well. Current ESP readings are coming in below -11% across the board, suggesting that PAAS could miss at its next report later this month.

This wouldn’t be that surprising for the firm either, as the recent history on this front has also been poor. Over the last four quarters, the average surprise was roughly -20%, meaning that the firm usually strikes out in earnings season.

Thanks to this, the company now has a Zacks Rank of 5 or ‘Strong Sell’, suggesting that it is likely to underperform its peers by a pretty wide margin over the next few months. And, the company has an ‘underperform’ Zacks Recommendation as well, so the longer term isn’t looking too great either.

Other Factors

It is also important to note that silver prices have been extremely weak as well. The commodity, as represented by the silver ETF SLV, has lost about a quarter of its value so far in 2013.

The metal has also been extremely weak over a longer term look as well, plunging by over 40% in the trailing two year frame. With this kind of performance for Pan America’s main product, it is pretty easy to see why PAAS has been on such a terrible run lately.

Bottom Line

Pan American Silver is facing some stiff headwinds and the trend is quite unfavorable. Analysts are also taking note, and are pushing their estimates lower for this silver mining firm.

You really can’t blame them though, as it is hard to be too bullish on a company that has seen its main product go down in price by nearly 50% over the past two years. Given this, you should probably stay away from this chronic underperformer, and focus on companies outside of the silver mining space for the time being.

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