Fundamentally, the bull case for precious metals miner Coeur Mining (NYSE:CDE) zeroes in on an opportunistic narrative. Inflation will likely rise, which translates to a higher valuation for silver and gold, Coeur’s main products. However, recent economic data cast doubt on the direction of monetary policy. Still, it’s important to concentrate on accelerating consumer prices, which is the main catalyst. For that reason, I am bullish on CDE stock.
Breaking Down the Ebb and Flow of CDE Stock
Since the beginning of the year, CDE stock has gained 70%. Most of this performance stemmed from the period beginning in late February. During this time, the price of gold skyrocketed, in large part due to robust demand from China during the nation’s Spring Festival. Later, global central banks – led again by China – piled into the yellow metal.
Notably, hedge fund manager Michael Burry – who became famous for his exploits in the book and film The Big Short – also bought via the Sprott Physical Gold Trust (NYSE:PHYS). Recently, I made the argument that because gold is largely a reactionary play, Burry’s aggressive move into the commodity raises eyebrows. Basically, it implies the materialization of the fear trade.
Certainly, with the geopolitical flashpoints raging around the world, there’s plenty of fear going around. And with that, it’s normal to see gold rise as part of safe-haven demand. Subsequently, that’s a positive for CDE stock.
Adding to the bullish narrative, a weaker-than-expected April jobs report implied that the Federal Reserve didn’t have to raise interest rates anymore to combat blistering inflation. Indeed, at some point, the expectation was for the central bank to lower the burden of borrowing. If so, that would be good news for CDE stock.
However, the latest Initial Jobless Claims report showed that 5,000 fewer people filed for unemployment insurance than expected. While natively encouraging, this framework also meant that the labor market may be stronger than advertised. In other words, more dollars are continuing to chase after fewer goods. That’s inflationary, and that could cause the Fed to be hawkish again.
After a series of scorching sessions, CDE stock suffered a loss of 7.5% last week. Nevertheless, the focus on monetary policy alone may be misguided.
Inflation Air Pocket Bodes Well for the Mining Sector
In November of last year, a Vox op-ed argued that higher prices may be here to stay indefinitely. Obviously, that’s not what consumers want to hear. At the same time, if this projection holds true, it may be a big positive for CDE stock. Essentially, the framework implies that the gold and silver complex may rise irrespective of the Fed.
One of the core arguments forwarded was that the Fed’s hawkish interventions merely slowed the pace of inflation or disinflation. However, what people want to see is deflation – prices of consumer goods actually declining from pandemic levels. That might not happen. Society may have to become acclimated to the concept of permanently high prices.
Now, the vagary comes in the form of the real estate market. For lack of a better word, apologists in this sector believe that the housing market won’t crash because, again, we have entered into a realm of permanently high prices. So, a million-dollar home is the new normal.
Homes represent the ultimate in big-ticket items that aren’t budging right now due to high demand and low supply. However, the rise in tech layoffs may negatively impact some of the fastest-growing occupations, occupations that offer enough compensation for homeownership. With enough layoffs, people may be forced to sell their homes at whatever the market can realistically bear.
Such an event could cause a deflation in housing, but that doesn’t necessarily mean we’ll see lower gold prices. For example, super-big-screen television sets used to be extremely pricey. Now, you can pick them up for a few hundred bucks. Deflation in TVs didn’t impugn upon other consumer electronics categories.
In other words, the inflation that matters – the type that keeps consumer goods and energy prices elevated – has shown no signs of reversing course, irrespective of the Fed or other fundamental factors. That’s terrible news for the consumer. However, it’s positive for CDE stock.
Good Value Is on the Table
While the recent volatility in CDE stock may not offer the most enticing picture, it does come with a silver lining: Coeur appears to be undervalued.
On paper, it’s already trading at a compelling discount. The market prices CDE stock at 2.34x trailing-year revenue. That’s lower than the gold sector’s average multiple of 3.23x. Even better, analysts anticipate that by the end of this fiscal year, revenue could land at $994.34 million.
Assuming a share count of 399.32 million, CDE stock is currently trading at 2.18x projected sales. That’s even more undervalued than the sector, which implies that Coeur is a speculative idea to seriously consider.
Is Coeur Mining Stock a Buy, According to Analysts?
Turning to Wall Street, CDE stock has a Moderate Buy consensus rating based on four Buys, two Holds, and zero Sell ratings. The average CDE stock price target is $5.18, implying 7.8% downside risk.
The Takeaway
With the latest economic data suggesting that the Federal Reserve may need to intervene against a hot labor market, CDE stock tumbled sharply. However, the volatility may have only opened a door to an undervalued opportunity. That’s because prices have demonstrated that their rise may be permanent, irrespective of what the central bank does.
Further, fluctuations in one sector don’t necessarily affect others. Ultimately, with core commodity prices rising, precious metals stand on fertile ground. That’s good for Coeur Mining.
