Silver recently hit a 52-week high in early May, rising above $18 per ounce. Over the past year, the iShares Silver Trust (NYSEARCA:SLV) is up more than 20%. This increase in silver prices has also lifted the share price for many silver miners. Now investors are wondering if they’re already late to the party in commodity stocks.
Like gold, silver is considered a store of value, though the price of silver tends to be rather volatile. Yet compared to gold, silver is still quite cheap. The gold/silver ratio is currently just shy of 100. Theoretically, that means you could buy 100 ounces of silver for the price of a single ounce of gold.
Historically, the ratio has held around 60. For example, in November 2008, silver was around $8.50. By March 2011, it hit almost $46.50. Over that time frame, the gold-to-silver ratio stuck close to its historical average.
In other words, silver has been underperforming lately. The Street would likely argue that silver is rather cheap. What could this mean for the price of silver?
If you think the ratio will eventually return to the mean, i.e. the ~60 level, then either the price of silver will go up or the price of gold will have to go down.
Many on the Street believe silver may indeed go higher, as investors increasingly buy into precious metals as a hedge against a potentially-upcoming worldwide economic contraction.
With that in mind, some of the silver stocks to buy in June include:
- Hecla Mining (NYSE:HL)
- Mag Silver (NYSEMKT:MAG)
- Silvercorp Metals (NYSEMKT:SVM)
- Global X Silver Miners ETF (NYSEARCA:SIL)
If silver continues its bull run in the weeks or months ahead, these stocks could be well positioned to benefit investors.
Silver Stock: Hecla Mining (HL)
Stock price as of this writing: $3.15
Year-to-date (YTD) % Change: -7.1%
One year % Change: +150.1%
Hecla Mining is a silver producer operating silver mines in Alaska, Idaho and Mexico. It is also the third-largest U.S. producer of both zinc and lead. And it is a growing gold producer, with operational mines in Quebec, Canada and Nevada.
Idaho-based Hecla was established in 1891 and HL stock has been traded on the New York Stock Exchange for over 50 years.
For 2019, silver production was 12.6 million ounces, while gold production notched a company record of 272,873 ounces produced. 2020 company-wide production is projected at 11.1 million to 12.1 million ounces of silver and 212,000 to 225,000 ounces of gold.
On May 7, when the group released Q1 results, it reported a quarterly loss of 3 cents per share. A year ago, losses had been 5 cents per share.
During the coronavirus-related lockdown, four of its five mines have remained operational, accounting for 95% of production. Management also emphasized balance sheet strength, with no near-term debt maturities and strong liquidity.
As economies start to reopen, the second half of the year may look even better than the first. I’d consider investing, especially if HL stock starts to pull back toward $3.
MAG Silver (MAG)
Stock price as of this writing: $11.84
Year-to-date (YTD) % Change: 0% (i.e., flat)
One year % Change: +27.2%
With a $1.1 billion market cap, Canada-based MAG Silver would be my second silver play for the month of June.
The group’s main project, Minera Juanicipio, is located in Mexico’s Fresnillo District in Zacatecas State. MAG has a 44% interest in the joint venture, while Fresnillo plc is the project operator and holds the remaining 56%. The region is important for silver investors in general, as it has historically produced about 10% of global silver production.
On May 15, this silver stock released its most recent quarterly statement. The joint venture is now in the construction phase heading to production, which is expected to begin in the second half of 2020. By mid-2021, production is expected to reach 85% of the anticipated 4,000 tonnes per day capacity.
$132 million in cash and no debt on the books should also give most investors confidence. In other words, the company has plenty of liquidity with a strong balance sheet.
If you want to bet on both on the price of silver and the potential of the Juanicipio JV, I believe MAG Silver’s growth prospects make it a suitable addition to any long-term portfolio. The Street does not expect much jurisdictional risk in Mexico for non-Mexican miners.
However, if there were to be a second wave of COVID-19 in the backhalf of the year, production may be delayed. I’d buy MAF especially if the price gets close to $11.
Silvercorp Metals (SVM)
Stock price as of this writing: $4.19
Year-to-date (YTD) % Change: -26.1%
One year % Change: +105.3%
Canada-based Silvercorp Metals produces silver, lead and zinc metals in concentrates solely from mines in China. Its main silver and mineral assets are located in the Ying mines in the Henan province of China. And given the ebb-and-flow in trade relations with China, some shareholders may believe its concentration in the country makes it a more risky investment from a jurisdiction standpoint.
Yet the initial investment goes back to early 2000s. And today Silvercorp is the largest Western-listed producer of silver in China. Therefore, it may be important to concentrate on the fundamentals of the company, rather than worrying about country-specific jurisdictional hurdles.
On May 21, SVM released both Q4 and FY2019 results. Despite coronavirus-related operational closures early in the year, annual silver, lead and zinc production surpassed annual guidance by 3%, 3% and 17%, respectively.
Cash flow from operations was $77.2 million, up 10% compared to $70.4 million in the prior year. Gross profit margin is around 40%, quite a high number for the industry. Its balance sheet as well as operation metrics remain robust.
Over the years, management has shown agility and success in producing quality assets and generating massive cash. As I expect the performance to continue, I’d buy the dips in this silver stock.
Silver Stock: Global X Silver Miners ETF (SIL)
Stock price as of this writing: $35.10
Year-to-date (YTD) % Change: 5.8%
One year % Change: +59.7%
The Global X Silver Miners ETF is an exchange-traded fund (ETF) comprised of a range of silver stocks. An ETF gives investors the opportunity to buy into a basket of stocks, bonds or underlying assets such as physical commodities. Put differently, SIL serves as a targeted play on silver mining without depending on any single company’s strength. This particular ETF tracks the Solactive Global Silver Miners Total Return Index.
Most silver miners have reported robust results over the past year, directly buoyed by increasing silver prices. As a result, revenue, operating cash flow and earnings have all pleased the Street. In other words, despite mine closures due to the pandemic, the major silver miners’ fundamentals look a lot better now than they did a year ago.
Investors in the precious metal space ought to know that “Only 28% of silver comes from mining activities where silver is the primary source of revenue.” In other words, most companies have to mine other minerals and metals in addition to silver. So silver becomes a by-product of gold, zinc, lead and copper mining,
The shiny metal has various uses in industry, such as electronic devices. Therefore the outlook for global economic activity may easily affect the price of silver. This economic uncertainty is a factor in the volatility of price of the commodity.
If you are looking for other individual silver stocks to do due diligence on, you may want to start with the names held by this ETF. When you analyze these companies, please remember that production growth is crucial for the mining industry.
Long-term investors may particularly want to hold SIL if they believe that the price ratio of gold to silver is set to move closer to its historical average. On the other hand, if silver prices stumble, SIL will be punished.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.