Gold has moved to an all-time high, and many gold miners have rallied in response. But, somewhat quietly, silver stocks have gained as well.
A move higher in the underlying commodity no doubt has helped. Indeed, save for a brief move last year, silver trades at its highest level in almost four years. And there’s a case that silver stocks should continue to rally and potentially outperform its more valuable and more widely-held counterpart.
To be sure, the setup for gold at the moment seems almost perfect. The coronavirus pandemic adds risk worldwide, and can lead investors to the safety of the yellow metal. A ballooning federal deficit, along with interventions by the Federal Reserve, raise the specter of inflation — another bullish catalyst for gold.
But silver and silver stocks, can benefit for similar reasons. Indeed, they have: silver has rallied some 65% from March lows. Meanwhile, silver can get a boost from industrial demand as well, meaning it might outperform if the global economy manages to recover. Electric vehicles and solar panels both require silver, which could drive demand in coming years as well.
At the least, precious metals investors can look to the group for diversification. For those investors, here are eight silver stocks that deserve at least a long look:
- Pan American Silver (NASDAQ:PAAS)
- Endeavour Silver (NYSE:EXK)
- MAG Silver (NYSEAMERICAN:MAG)
- Fortuna Silver Mines (NYSE:FSM)
- Wheaton Precious Metals (NYSE:WPM)
- Silvercorp Metals (NYSEAMERICAN:SVM)
- First Majestic Silver (NYSE:AG)
- iShares Silver Trust (NYSEARCA:SLV)
8 Silver Stocks: Pan American Silver
The simplest play among silver stocks is to go with the biggest play. As far as U.S.-listed names go, that’s Pan American Silver.
Pan American admittedly isn’t the world’s largest producer. That honor goes to Mexico’s Fresnillo plc (OTCMKTS:FNLPF). In fact, despite its name, Pan American isn’t even a pure-play silver stock.
After that deal, almost half of reserves come from silver. But regardless of where its revenue has come from, PAAS stock is a winner. The stock has rallied over 300% in the last five years, far outpacing gains in silver or gold.
That’s what miners are supposed to do: outperform the commodity when it rises. But as I’ve written relative to gold miners like Barrick Gold (NYSE:GOLD), the industry often has failed to provide that leverage.
The fact that Pan American has delivered on its promise makes it a solid pick for silver bulls going forward. The diversification of the portfolio, and industry-leading all-in costs, provide downside protection as well. As far as long-term, “set it and forget it” picks in the mining space go, PAAS is at or near the top of the list.
Of course, there’s a cost to Pan American’s diversified portfolio and lower risk. It means lower reward as well. For ardent silver bulls, there are other choices in the sector that might be more appealing.
One of those is Endeavour Silver. The Canadian company operates three mines in Mexico, is developing another, and has six properties in the midst of exploration projects. Reserves and revenue are more tilted toward silver, though Endeavour produces gold as well.
The potential rewards here from a bounce in silver are greater than those at a miner like Pan American, given Endeavour’s smaller size. But the risks are higher, too. Endeavour’s execution hasn’t always been on point: EXK stock is flat over the last three years despite a 20% increase in silver. Two of the three operating mines are in the midst of improvement efforts, which may or may not pay off.
Like most junior miners, EXK is a high-risk play. But as far as silver stocks go, few, if any, offer higher potential rewards.
MAG Silver offers an intriguing play on a massive project in Mexico. MAG owns 44% of the Juanicipio mine in the state of Zacatecas. Juanicipio lies in a region long known for its resources: mining has gone on in the area since the 1500s.
Early exploration suggests that Juanicipio could be an enormous project, with high-grade silver as well as gold, lead, and zinc. MAG Silver has to fund its share of the costs — some $46 million in 2019 — but Fresnillo will operate the mine. With $130 million in cash and no debt, MAG should be able to contribute its share of costs until the mine is up and running.
From that point, MAG will have options. It could leverage that asset to become a larger silver operator, much like Pan American. It could sell its interest; Fresnillo could be interested in consolidating its holding. Regardless of how the story plays out, the combination of success in Juanicipio and a higher silver price could make MAG one of the biggest gainers among silver stocks.
Fortuna Silver Mines
For some investors, Fortuna Silver Mines might be a ‘Goldilocks’ play among silver stocks. The miner remains relatively small, with a market capitalization just under $1 billion, even with FSM stock at its highest level in almost two years.
But it’s not an early-stage play. Fortuna is established and profitable. Price-to-earnings multiples aren’t the best way to judge mining stocks, but a 16x forward P/E multiple, and a price at about 1.3x book, both suggest valuation is reasonable.
Fortuna will have some short-term issues to work through. Production in Mexico took a hit in the first half of the year amid closures driven by the coronavirus pandemic. The company is spending significant amounts of capital to complete its Lindero mine in Argentina, which already is well over budget.
On the other hand, there’s the chance for significant upside. Lindero offers potentially huge reserves, and should improve profitability nicely in 2021 and beyond. Normalized production at the Mexican properties can help as well. Particularly if silver keeps rallying, FSM can be a big winner.
Wheaton Precious Metals
Wheaton Precious Metals formerly was known as Silver Wheaton, but as its portfolio shifted, the company changed its name to account for the new reality. According to a presentation this month, 53% of production over the next five years should come from gold, against just 40% for silver.
Still, WPM stock does offer solid exposure to silver through a proven business model. Wheaton is a so-called streaming company, which funds exploration mines in exchange for a share of sales once production commences.
It’s a model executed well in the gold space by Royal Gold (NASDAQ:RGLD) and Sandstrom Gold (NYSE:SAND), but WPM stock has held its own. Over five years, the stock has more than tripled, and nearly matched the returns in SAND. Both names have sharply outperformed the more widely-held RGLD, which has ‘only’ doubled.
Because of the portfolio, investors interested in WPM stock do need to be bullish on gold as well. But the value of the streaming model has been proven, and if silver outperforms gold Wheaton should outperform its rivals.
Silvercorp is an interesting pick among small-cap silver stocks. Silvercorp’s three mines are located in China, and produce mostly silver along with lead and zinc.
SVM stock isn’t likely to be the biggest winner going forward, but it’s been the biggest winner among silver stocks in recent years. Shares have risen more than 500% over the past five years as the mines have reached production and driven impressive free cash flow.
The operational profile should continue to be solid, even if the stock isn’t likely to gain another 500% going forward. Silvercorp has no debt. The mines should have at least 15 years of life remaining, according to the company.
As a result, SVM presents a solid leveraged bet on the silver price. Its upside at this point probably doesn’t match that of EXK or even MAG, but solid execution and a debt-free balance sheet minimize the downside as well.
One reason to keep an eye on AG stock is that it’s been somewhat left out of the rally in the industry so far. Shares are down 12.5% year-to-date, while silver is up about 9% and other silver stocks have gained at least 10%.
Like Fortuna, First Majestic is taking a bit of a hit this year: its three producing mines all are in Mexico. But the company should get back to normal, which should be good for the stock. Over time, the stock has been a huge winner, with a nearly 1,400% return since going public.
Bears have cited some concerns about underinvestment, and AG stock has seen unsustainable rallies in the past (notably in 2016). But as a mid-cap pick, AG still is worth a long look.
iShares Silver Trust
Of course, investors can also buy the silver through an exchange-traded fund like SLV. The ETF does have an annual fee of 0.50%, but physical ownership entails cost (and risk) as well.
With silver prices rising, there’s perhaps a case that the rally has gone too far. But, again, secular trends suggest demand should rise. Production may not be keeping pace. And inflation, so often cited as a tailwind for gold, could benefit silver as well.
The more aggressive way to play the metal is through silver stocks, which offer upside leverage. But those stocks also introduce execution risk. For some investors, the best strategy may be to keep it simple. For that strategy, SLV fits the bill.
Vince Martin has covered the financial industry for close to a decade. He has no positions in any securities mentioned.