Just last week Endeavour delivered its ninth straight increase in proven, probable, indicated, and inferred resources on the heels of its eighth straight year of rising production. Silver equivalent proven and probable reserves now sit at 34.2 million ounces, up 67% from year-end 2011, while inferred resources rose by 92% to 87.1 million silver-equivalent ounces, or SEO. In January, it delivered 33% year-over-year SEO growth. With El Cubo’s expansion well under way, it wouldn’t be crazy to expect SEO production to rise by perhaps 1 million or more SEO this year.
On top of this, global weakness and demand from the tech sector should create enough of a buoy to put a floor under silver prices. Unless we see a near-halving in silver prices, Endeavour will remain incredibly profitable. The further it falls, the closer I get to initiating a real money position.
MGIC Investment Corp. (NYSE:MTG)
If you haven’t been paying attention to the mortgage insurance sector, it’s been a free-for-all rally across the board. Radian Group Inc (NYSE:RDN), MBIA Inc. (NYSE:MBI), and MGIC have been soaring as the housing sector improves and investors make a long-term bet that underwriting qualities will improve enough to keep these insurers very profitable. That optimism, however, just doesn’t translate over to MGIC, in my opinion.
I was stunned last week to learn, after reviewing MGIC’s earnings results, that its stock was rallying. Needless to say you can imagine how shocked I am now just a few days later to see that it’s up an additional 30% since that initial level on the expectation that it’ll raise cash. A deeper dive into the figures, though, paints a much starker picture.
MGIC has now produced 10 consecutive quarterly losses and its risk-to-capital ratio has soared to 44.7:1 — a completely unsustainable ratio that its own management has said is likely to head higher. As a reminder, countless failed mortgage insurers either stopped writing new policies or were forcibly shutdown for risk-to-capital ratios in the 42:1 to 58:1 range. If MGIC is going to raise cash, shareholders are going to feel the pain as it dilutes them to oblivion to get back under regulators’ proposed risk-to-capital requirements of 25:1. In simple terms, if MGIC continues to move higher, I’d suggest digging deeper into its balance sheet and looking at potential ways to bet against its continued success.
The article 3 Stocks to Get on Your Watchlist originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He’s a total nerd when it comes to making lists. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Qualcomm.
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