First Majestic Silver Corp. (NYSE: AG) Q4 2011 Price Target

Recent price: 17.24$

P/E Ratio: 22.68

3 Months Target Price: 27$

Company Description

According to the company itself, First Majestic owns three producing silver mines and two development projects through four separate wholly owned Mexican subsidiaries. The La Encantada Silver Mine is held by Minera La Encantada, S.A. de C.V., the La Parrilla Silver Mine and the Del Toro Silver Mine are held by First Majestic Plata, S.A. de C.V., the San Martin Silver Mine is held by Minera El Pilon, S.A. de C.V., and the La Luz Silver Project is held by Minera Real Bonanza, S.A. de C.V. First Majestic's largest operation; the La Encantada Silver Mine was expanded several times since 2006 to reach the current capacity of 3750 tpd. Production reached close to 3.8 million ounces of silver in 2010 and is anticipated to reach approximately 4.5 million ounces of silver in the form of Dore bars in 2011. 

Confidence Margins

Strong resistance $30.00 (+74%)

Light resistance $26.88 (+56%)

Light support $14.18 (-18%)

Strong support $10.32 (-40%)

Recommendation

Recently, we have witnessed a pullback in the price of precious metals. As long as investors' fears about a potential economic double-dip are not eased, we should see an upside in the price of silver and consequently to price of the stock of companies such as First Majestic Silver Corp. 

Entry strategy

For the cautious investor: 
Buy the stock for 18$ or less. 


For the risk-taking trader: 

The January 2012 30$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 55$ per contract. 

Exit Strategy

For the cautious investor: 

Sell when the stock reaches 27$, or keep it until 30$ if you are more bullish in your own analysis. 

For the risk-taking trader: 

The contracts should be kept until the underlying reaches 27$. This should provide a very interesting return if the underlying reaches the target price as the contracts will get in the money.