Pick#8 Sierra Metals for diversity

Introduction

This week, we added Sierra Metals (SMTS) to our portfolio. Honestly, there are many stocks in our Radar, but SMTS got executed as its price dropped and triggered the order price. We feel many picks in our portfolio are in better stand than SMTS, but we liked the stock as it will add some diversity to our portfolio beside other technical factors that we will explain in this report.

What is Sierra Metals?

SMTS is a premier Latin American precious and base metals producer with significant resource growth potential. The Company owns and operates three mines in commercial production: the Yauricocha Mine in Peru, the Bolivar and Cusi mines in Mexico. SMTS began exploration and development work in Mexico in early 2003 with various expansions in the following years. Metals under explorations are silver, copper and gold. Below map shows the mines locations of the company.

Why Sierra Metals?

There are many attractive points about Sierra Metals like below.

1. Trading at 0.57 price to book ratio which is very low, so, the stock is trading below its available assets to shareholder
2. The company for many years is profitable (2018 till 2020). For the last 2 years it was losing for abnormal conditions that halted production like HSE concerns and environment. HSE concerns were resolved. For the last quarter it was profitable and for the last 3 quarters, revenues was always growing. We expect a turnover in profit that will follow with a turnover in price direction.
3. The stock for above reasons was hammered and trading at lowest historical prices which we expect it will not last for long.
4. High drop made the stock drop from near $4 before above issues to trading around $0.28. Almost around 15 times difference in just 2 years.
5. The stock is not able to go further down for almost 3 months and at bottom levels from Oct 2022 signaling that bears are extremally weaken. Historically, similar conditions happened before followed by up trend.

Below is the price of SMTS for max period from Google Finance

Below is the revenues and income for last quarters where revenues is back growing and loses reduced to a profit and we can expect further improvements in future. Company is sensitive to metals prices and current prices and high compared to the past.

Conclusion

SMTS is fitting our requirement of a stock that can double in price within 2 to 3 years, so, it is fit for our portfolio. It will add required diversity to cover for commodities and its raise in price.

For our portfolio and as we used to cover that for honesty, the position of the portfolio is improving from end of June bottom. The battle with Dow is currently winning by our portfolio by 1% and the high difference between S&P and Nasdaq is minimizing. For S&P a difference of 9% is now at 4% and a difference with Nasdaq of 14% is now only 8%. We hope with further bottom stocks, we can beat highly costly stocks of indexes. Below is the current chart.