Silver had a solid run in 2020 delivering a yearly gain of 47.5% — its best year since 2010. In fact, the white metal’s run eclipsed gold’s rally of 24.6% in 2020. Silver futures for March 2021 delivery closed at $27.64 an ounce on Jan 5, gaining 4% so far this year. This uptrend can be attributed to upbeat U.S. economic data, with the Institute for Supply Management’s manufacturing index climbing to its highest since August 2018. This scenario looks promising for silver as it an indispensable component for several industrial products.
Silver in 2020: The Highs & Lows
Industrial applications account for roughly 60% of the global silver consumption. Demand for the white metal was severely impacted as the COVID-19 pandemic battered the industrial sector last year. The Official NBS Manufacturing PMI in China plunged to a record low of 35.7 in February 2020. Per the Institute for Supply Management, the U.S Manufacturing Purchasing Managers’ Index (PMI) came in below 50 (which indicates contraction) from March to May. IHS Markit Eurozone Manufacturing PMI reading slumped to an all-time low of 33.4 in April and remained below 50 till June. Silver prices had plummeted to 11 year lows to $11.68 an ounce in March.
However, as economies started reopening and businesses gradually resumed operations, industrial activity picked steam. Silver hit a high of $29.92 per ounce in August 2020 — levels last seen in 2013. Apart from industrial demand, the market uncertainty amid the pandemic and the U.S elections renewed interest in silver as an investment vehicle. Remarkably low interest rates and continued liquidity boosts by central banks also contributed to the rally. Silver closed the year 2020 at around $26 an ounce.
The Way Ahead
The U.S Manufacturing PMI registered an impressive 60.7% in December 2020 — the highest in two and half years. The IHS Markit Eurozone Manufacturing PMI’s December reading of 55.2 also marked the strongest growth in factory activity since May 2018. The Manufacturing PMI in China came in at 51.9 in December, marking the 10th consecutive month of expansion in factory activity. This momentum is expected to continue this year as well and, in turn, drive silver prices north.
While the global silver jewelry market was impacted by the pandemic in 2020, it is set to bounce back and is likely to see a recovery of 13% primarily due to the economic revival in 2021. Silver will also continue to serve as a safe haven asset in times of uncertainty. The ongoing revolution in green technologies, aided by exponential growth of new energy vehicles and investment in solar photovoltaic energy, will act as a major catalyst for the white metal going forward. Silver’s use in 5G-infrastructure and upcoming intelligent electronics is also likely to drive demand.
Meanwhile, absence of development of new projects, declining ore grades and depleting reserves remain headwinds. While demand remains strong, shortage in supply will drive silver prices in the days ahead.
In a year’s time, the
Mining – Silver
industry has rallied 43.0%, outperforming the S&P 500’s growth of 16.8%. The industry falls under the broader
Basic Materials
sector, which gained 26.3% in the same time frame. Amid the pandemic induced uncertainty, the mining industry has been resorting to technological innovations targeted at nearly every level of operation to increase efficiency, sustain growth and keep costs low.
4 Silver Stocks to Watch
We suggest you to keep an eye on these silver-mining stocks. We have handpicked four such stocks that have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a
VGM Score
of A or B. Our research shows that stocks with such a combination offer the best investment opportunities.
You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Over the past year, these stocks have outperformed the S&P 500’s rally of 16.8%. These stocks are anticipated to carry the momentum forward backed by their earnings growth projections.
First Majestic Silver Corp.
AG
: Headquartered in Vancouver, Canada, the company is focused on silver production in Mexico. It owns and operates the San Dimas Silver/Gold Mine, the Santa Elena Silver/Gold Mine and the La Encantada Silver Mine.
The company has recently adopted a dividend policy per which it intends to pay quarterly dividends of 1% of net revenues. This is a major milestone for the company and highlights strength and sustainability of its business. The company’s focus on technological innovation has driven efficiencies and lowered cost of production. Since the acquisition of the San Dimas mine in 2018, the company has transformed it into its lowest cost and largest producing mine. First Majestic successfully installed a new (High Intensity Grinding) HIG mill at the Santa Elena mine, which has resulted in record silver/gold recoveries. This HIG mills will be installed throughout the business, which is expected to bolster the bottom line. Higher metal prices, improved production rates and effective cost control management will continue to aid its results.
The Zacks Consensus Estimate for the company’s fiscal 2021 earnings suggests year-over-year growth of 84%. The estimate has been revised upward by 64% over the past 90 days. The stock has a Zacks Rank #2 and a VGM Score of B. Its shares have appreciated 22.2% in a year’s time.
Pan American Silver
PAAS
: This Vancouver, Canada-based company owns and operates silver and gold mines located in Mexico, Peru, Canada, Argentina and Bolivia.
In 2019, the company closed the buyout of Tahoe Resources and is the world’s second largest primary silver producer with the biggest silver reserve base globally. It is also an industry leader in high margin low cost production. The La Colorada mine in Mexico is expected to act as a catalyst. Recently, the company announced that exploration drilling led to an increased inferred mineral resource estimate for the skarn deposit of 100.4 million tons, containing an estimated 141.0 million ounces of silver. This marks a 38% increase from its previous estimate. The Navidad project in Argentina is also anticipated to be a growth driver going forward. It is one of the largest undeveloped primary silver deposits globally.
The Zacks Consensus Estimate for the company’s current-year earnings suggests year-over-year growth of 149%. The stock has a trailing four-quarter earnings surprise of 3.51%, on average. The company’s shares have gained 61% in the past year. The company has a Zacks Rank #3 and a VGM Score of B. It has a long-term projected earnings growth rate of 15.7%.
Hecla Mining Company
HL
: This Coeur d’Alene, ID-based company, together with its subsidiaries discovers, acquires, develops, and produces precious and base metal properties in the United States and internationally.
The company has a diverse asset portfolio in mining friendly jurisdictions. It boasts two of the largest silver mines in the world and two highest-grade large silver mines. The company currently produces about one-third of the silver mined in the United States. This is expected to grow as Lucky Friday Mine in Idaho ramps up. The mine’s production is expected to double again in 2021 and 60% more within four years. The company is also one of the lowest-cost U.S. silver producers. In third-quarter 2020, silver margins exceeded 50% of the silver price. Upbeat production, lower costs and higher metal prices will bolster the company’s margins.
The Zacks Consensus Estimate for the company’s fiscal 2021 earnings suggests growth of 722% over the prior fiscal year. The company has a long-term estimated earnings growth rate of 1%. The stock has surged 105% in the past year. It currently has a Zacks Rank #3 and a VGM Score of B.
Fortuna Silver Mines Inc.
FSM
: Headquartered in Miraflores, Peru, the company engages in exploration, extraction, and processing of precious and base metal deposits in Latin America. Its main properties include the Caylloma mine in Peru; the San Jose mine in Mexico; and the Lindero gold project in Argentina.
The company will continue to gain from its focus on maximizing production while simultaneously maintaining operational efficiencies to lower cash costs. Such initiatives and high metal prices will drive the company’s bottom line. Fortuna Silver’s disciplined strategy of locating new deposits or pursuing mergers and acquisitions will continue to drive growth. The first gold pour at Lindero in October 2020 was a significant achievement for the company. The mine is on track start commercial production in first-quarter 2021. Lindero has reserves for a projected life of 13 years and is expected to act as a tailwind going forward.
The Zacks Consensus Estimate for earnings for fiscal 2021 indicates year-over-year growth of 422%. The estimate has been revised upward by 11% over the past 90 days. Shares of the company have soared 125% over the past year. It has a Zacks Rank #3 and a VGM Score of B.
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