3 Silver Stocks to Consider on a Precious Metals Surge

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There’s nothing like the mainstream media to spoil the party for the gold and silver bugs.

3 Silver Stocks to Consider on the Precious Metals Surge
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According to a survey of professional traders and analysts, the precious metal markets are forecasted to be weak in 2016, with gold in particular expected to average $1,153 per troy ounce, about -2.5% compared to its current valuation and -8% from a forecast extracted from a similar survey back a few months ago in July.

It’s easy to see why investors are pessimistic towards precious metals, especially derivative investments like silver stocks. Since hitting record prices in 2011, many silver stocks are down -40% or more. Fundamentally, Wall Street insiders are expecting the U.S. Federal Reserve to finally make good on its promise of an interest rate hike — in theory, a strong headwind for commodities in general. And finally, physical demand for the metals has softened substantially in India and China, in part due to weak consumer interest.

However, the other side of the coin is hard to ignore. For the month of October, the silver bullion spot price is up 11%, reversing an ugly and protracted trend in the commodity markets. As a result, silver stocks rallied hard, as indicated by the surge in the Gold/Silver Sector, which is up over 23%.

The primary suspect, of course, is the U.S. Dollar Index, which gave up nearly 2% over the same time frame. But the primary reason for the precious metals rally could be concerns over a weak economy. The severely negative guidance admitted by Wal-Mart (WMT) is a real-time indicator of broad uncertainty — something that, whether we like it or not, hard assets and silver stocks thrive on.

The constant bickering over the precious metals’ forecast will likely never end. That said, it’s undeniable that the sector has found its footing in recent weeks. Here are three silver stocks that should make the most of this turnaround.

Best Silver Stocks: iShares Silver Trust ETF (SLV)

Best Silver Stocks: iShares Silver Trust (SLV)

The logical investment choice for a rally in silver stocks is the metal itself. For those not interested in holding physical bullion, the benchmark silver exchange-traded fund, iShares Silver Trust (SLV), is the next best alternative.

With the October rally, the SLV ETF is now up around 2% year-to-date, and has gained an impressive 13.5% since bottoming in late August.

However, over the past five years, the SLV ETF is deep in the red at -33% — can we trust this rally when so many other surges in silver stocks failed miserably?

While prognostications for silver stocks is always a murderously tricky affair, the price of the SLV ETF is currently above both its 50- and 200-day moving averages, suggesting that this is not some one-off affair.

SLV ETF, technical analysis
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Source: Source: JYE Financial, unless otherwise indicated

Interestingly, the greenback’s major counterpoint — the Japanese Yen index — has gained in strength and is about to chart a “life cross.” Combining this information, we can surmise that the dollar risks correcting and that this inflationary pressure would eventually buoy the SLV ETF and most silver stocks.

Admittedly, it would be difficult for investors to ignore the SLV ETF’s historical volatility. But given uncertainty in the U.S. economy, as well as contrasting dynamics in international currencies, the SLV ETF could turn out to be a very prudent hedge.

Best Silver Stocks: Silver Wheaton Corp. (SLW)

Best Silver Stocks: Silver Wheaton Corp. (SLW)

Very few, if any, precious metals mining companies withstood the macro-scale storm that collapsed the commodity markets and Silver Wheaton Corp. (SLW) was no exception.

Over the past five years, SLW stock is down more than -44%, and despite this month’s turnaround, the world’s largest precious metal streaming company is behind the 8-ball at -29% YTD.

Capital losses aside, Silver Wheaton has been able to tread water significantly better than other silver stocks, primarily due to its streaming business model. This means that the company is able to purchase the gold or silver inventory of a mining ground not under its control, thereby saving the substantial cost of overhead.

As a result, the financial performance of SLW stock is quite impressive in light of the horrible circumstances affecting the silver industry.

SLW stock, technical analysis
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Source: Source: JYE Financial, unless otherwise indicated

Overall, SLW stock should closely match the underlying silver market rally. In addition, its enviable position as the king of silver stocks means that Silver Wheaton can weather the volatility that would sink most other mining companies.

Best Silver Stocks: First Majestic Silver Corp. (AG)

Best Silver Stocks: First Majestic Silver Corp. (AG)

There are patient people and then there are long-term investors of First Majestic Silver Corp. (AG).

Since late October of 2005, AG stock is in the red by more than 75% — easily one of the steepest losses among silver stocks not yet bankrupt. However, there are clear signs that perhaps the worst may be behind us. On a YTD-basis, AG stock is down -19% — nothing to celebrate on its own, but the figure is nonetheless a dramatic deceleration of bearishness.

Credit the steady hand of management, which has guided First Majestic through some very rough times. Revenue since FY2010 has gone up about 75%, thanks in large part to consistent silver production rates. Likewise, net income trends were mostly positive between FY2010 and FY2012, until a dramatic increase in costs and expenses forced earnings to go negative over the next two years — a situation that is being mitigated through layoffs and other restructuring efforts.

AG stock, technical analysis
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Source: Source: JYE Financial, unless otherwise indicated

This of course is only valid should the underlying silver market take off. If it does, however, AG stock is guaranteed to be on everyone’s radar.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2015/10/precious-metals-surge-lifts-silver-stocks/.

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