Gold is the traditional safe haven in volatile markets. But silver prices tend to rise even faster on a percentage basis – and so do silver stocks.
Gold and other metals have become popular in the wake of record fiscal stimulus measures that have caused investors to be concerned over inflation, with the yellow metal’s price having increased some 21% since the March 2020 market bottom. Gold is also a popular safe haven for multitudes of investors who have serious misgivings about the global economic outlook, and with the resurgence in Covid-19 cases caused largely by the Delta variant, safety demand for gold isn’t likely to wane anytime soon.
Lost in the latest excitement, however, is gold’s sister metal—silver. While gold has captured much of the investing world’s recent focus, silver has been largely relegated to the sidelines and its price has underperformed compared to gold in 2021. That should soon change, though, especially if historical analogues hold true. When it happens, you’ll want to own the best-performing silver stocks.
It’s no secret that gold has always been in high demand whenever investors have major concerns about the economy’s health (especially inflation). In October 2008, for instance, when stock prices were still in the doldrums during the final stages of the credit crisis, gold commenced a bull run which lasted almost three years and resulted in a 170% gain for the yellow metal.
Silver began its bull market around the same time in late 2008 but saw a far more impressive 400% gain in the ensuing three years before its run was over. Due to its lower price relative to gold, silver has always attracted a much bigger following among small investors, and for that reason has been called the “poor man’s gold.” Yet in the last decade, institutional participation in the companies that mine silver has also dramatically increased.
One important takeaway from past precious metal bull markets is that whenever gold demand is persistently high, silver sooner or later tends to outperform gold in percentage terms. Since more participants can afford to buy large quantities of the white metal, its volatility factor is magnified and the aggregate force of buyers push its price to far greater heights in percentage terms. So, whenever gold is in high demand, it’s usually just a matter of time before silver joins the parade.
One of the best ways to leverage a precious metals bull market is to own shares of the strongest silver mining and exploration companies. While silver’s price tends to outperform gold in a bull market, silver stocks can dramatically outperform the physical metals.
For instance, while the silver price gained 400% during the 2008-2011 bull run, some silver miners (Coeur Mining, for instance) gained 850% or more in that same time, while even smaller exploration stage firms saw gains well in excess of 1,000%. This illustrates that if you’re bullish on gold and silver, you should always consider having at least some exposure to the companies that mine the metals.
With that in mind, let’s take a look at some of today’s top-performing silver mining and exploration plays ranked by relative performance. Each of these companies is positioned to benefit from a secular bull market in silver, and most have some exposure to gold as well.
Best-Performing Silver Stock #6: SSR Mining (SSRM)
SSR Mining (SSRM), formerly Silver Standard Resources, is an established intermediate gold-silver producer and exploration company, with operations throughout North and South America. While the company has become more gold focused in recent years, it’s still heavily involved in silver production through its Puna (Argentina) mine, and through its San Luis and Pitarrilla (Mexico) development projects, as well as through its Amisk (Canada) exploration project. In the last quarter, the firm reported a 307% revenue increase based partly on an easy year-ago comparison, but also because of solid mining performance. Analysts expect around 70% revenue growth and a 37% EPS growth in full-year 2021. Meanwhile, the firm’s free cash flow generation has allowed it to exceed its shareholder return goals and supplement its existing $44 million-per-year base dividend with a sizable share buyback program of up to $150 million. It’s a solid silver story.
Best-Performing Silver Stock #5: Pan American Silver (PAAS)
Pan American Silver (PAAS) is one of the world’s largest silver producers with mines and exploration projects in Mexico, Peru, Bolivia and Argentina. The stock took a hit during last year’s coronavirus-related panic, and while it rebounded strongly after the March 2020 low, it’s currently well below last year’s August high of 40. Continued Covid-related problems at some of its South America operations, as well as problems at its La Colorada mine in Mexico, led to disappointing first-quarter 2021 sales and production numbers (although the company bounced back quite nicely in the second quarter, with 53% revenue growth and 253% EPS growth). For the year, analysts foresee 30% revenue growth and 7.7% EPS growth, though those estimates look modest now. Pan American also recently declared a dividend of 7 cents per share, continuing its commitment to returning capital to its shareholders.
Best-Performing Silver Stock #4: MAG Silver (MAG)
When it comes to silver plays, sometimes smaller is better. MAG Silver (MAG) is one such example. It’s not much of a miner yet, so the company has much to prove before becoming a big player in the industry. Yet it’s an advanced stage development and exploration company and has given investors above-average returns in past silver bull markets. The stock, which trades on the NYSE, has rallied 21% from its March correction low and is showing signs of building a new intermediate-term uptrend following a big August dip. MAG’s main focus and asset is the Juanicipio Project located in the Fresnillo Silver Trend in Mexico, the world’s premier silver mining camp, and MAG intends to use the net proceeds to fund exploration and development of this project. MAG is a bit speculative since its bull story is predicated on the Juanicipio mine meeting the firm’s expectations and becoming highly productive. But with an estimated 19-year mine life, all-in sustaining costs of around $5.75 per ounce of silver (versus current prices of $28 per ounce) and institutional forecasts for MAG to generate free cash flow of $120 million per year over the first five years once milling for the Juanicipio mine is fully operational, the potential for future growth is immense.
Best-Performing Silver Stock #3: Wheaton Precious Metals (WPM)
Wheaton Precious Metals (WPM) is the world’s largest silver streaming company. It has 14 silver purchase agreements, as well as gold and palladium agreements. Wheaton focuses mainly on high-quality, high-margin operations with a goal of returning a minimum of 30% of cash flow to its shareholders, with the remainder used to grow the company. It further has significant cash flow (including a record $765 million in 2020), manageable (and downward trending) debt levels, and is well positioned to fund commitments and contingencies, including dividends. Assuming silver prices resume their bull run in the coming weeks and months, Wheaton is well positioned to see additional growth as the safe-haven precious metals demand of recent years is expected to continue.
Best-Performing Silver Stock #2: Franco-Nevada (FNV)
Franco-Nevada’s (FNV) main business is streaming, which involves providing up-front payments to miners in exchange for the right to buy gold, silver and other resources at a set price. Franco’s extensive portfolio includes some 300 royalties in gold, silver and platinum metals mining (two-thirds) and oil/gas projects (one-third). With financing expected to be not quite as easy to come by post-pandemic, miners will increasingly turn to companies like Franco to provide money to sustain their operations. In exchange for providing assistance, Franco can leverage downturns to grow its portfolio in exchange for cash (as happened in the 2015 commodity slump). This makes it especially attractive right now, but assuming silver prices resume their rise, there should be even more leverage opportunities for investors who own FNV.
Best-Performing Silver Stock #1: Hecla Mining
Hecla Mining (HL) is the hands-down leader among actively traded silver stocks listed on the major U.S. exchanges. Hecla is known mainly for silver mining, producing around one-third of all silver mined in the U.S. Based in Idaho’s famous Silver Valley, Hecla operates several gold, silver and base metal mines and exploration properties throughout North America. It’s an excellent vehicle if you’re looking for some exposure to a long-term precious metals bull market. Hecla’s Greens Creek mine in Alaska is the star property and its most important producer. It’s also one of the world’s biggest and lowest-cost primary silver mines. With 17 patented load claims and an orebody containing silver, zinc, gold and lead, it operates 24 hours a day, 365 days a year. Hecla sees plenty of production volume there, with a whopping 2.3 million ounces of silver and 10,276 ounces of gold mined in the latest quarter at an all-in sustaining cost of $12.05 per ounce of silver. That’s well below current silver prices of around $24 per ounce and should enable the company to generate lots of healthy cash flow.
Based primarily on relative performance, these are six of the best-performing, actively traded silver-related stocks in the U.S. equity market right now. They also stand to benefit from a sustained rising trend in precious metals prices. While past performance doesn’t guarantee future results, it usually pays to follow the path of smart money traders and institutional investors. And the stocks mentioned above appear to be among the favorites of this market-moving crowd.
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Which silver stocks do you invest in? Leave a comment below to discuss.