According to Silver Institute’s report, The Outlook for Silver Industrial Demand, the demand for industrial silver is expected to reach a new high in 2014 that will account for more than 57% of total silver fabrication. Silver plays a vital part in various consumer and industrial product lines that includes televisions, photovoltaics, automobiles, and computers. With the U.S. economy gradually picking up, strong growth in the automobile sector, and the revival of housing and construction industry; silver’s price is all set to move up once again. As the precious metal is still hovering around $30, it’s high time to buy silver stocks. I have filtered three of the top stocks in the market today, which are expected to beat the industry in the years ahead.
The largest silver streaming company in the world, Silver Wheaton Corp. (USA) (NYSE:SLW) produces more than 24 million ounces of silver per year. Additionally, the company has several purchase agreements which enable it to buy silver at a relatively low cost. At the moment, the company has purchase agreements in South America and Europe. As a result, the company sells more than 20 million ounces of silver mined by other companies. Silver Wheaton’s production capacity is increasing day by day; the company expects to increase its annual silver production to 38 million ounces of silver by 2013.
Silver Wheaton is currently trading at a forward P/E (1yr) of 17.64x and has a dividend yield of 0.80%. It has a strong PEG of 0.32 and a whopping growth rate of almost 74%. Its PEGY of 0.31 shows that it’s a hugely undervalued stock that can give huge returns in the coming years. A mean recommendation of 1.7 on the sell side is a testimony that it’s one of the best stocks in the silver industry. Its mean target price on the sell side is $36.69; hence it has an upside potential of almost 27%. Therefore, I recommend buying Silver Wheaton.
Silvercorp Metals Inc. (USA) (NYSE:SVM)
Silvercorp Metals Inc. (USA) (NYSE:SVM) is a Canadian company focused on acquisition, development, and exploration of silver particularly in Canada and China, and is the largest primary silver producer in China. One of the hallmarks of this silver giant is that it has been producing silver at negative cost per ounce for almost 5 years, which is one of the lowest in the industry. On the 13th of February, 2013, the company released its unaudited operating results for Q313. The company produced 1.52 million ounces of silver in the third quarter with sales of $58.7 million. Cash flow from operations was $27.8 million, or 16 cents per share. One of the highlights of the quarter was that the company reported high grade silver intercepts from its SGX mine and GC project.
Silvercorp is currently trading at a forward P/E (1yr) of 7.73x, depicting the fact that it’s slightly cheaper than its industry peers. It has a high dividend yield of 2.30%, which is the best in the silver industry. With a mean target price of $7.75, Silvercorp appears to be undervalued by a monstrous 82%, and a perfect buy at this stage.
Pan American Silver Corp. (USA) (NASDAQ:PAAS)
This Canadian mining company, and the second largest primary silver producer in the world, Pan American Silver Corp. (USA) (NASDAQ:PAAS) has mines and projects in most of South America and the United States. The company produced a record 6.9 million ounces of silver in 4Q12. As a result, the company was able to produce 25.1 million ounces of silver last year, and expects to produce 25 to 26 million ounces of silver next year. In 2013, the company expects a cost of $11.80 to $12.80 per ounce of silver produced.
Pan American Silver is trading at a forward P/E (1yr) of 10.45x, and has a dividend yield of 1.10%. It has a PEG of 1.65 and a growth rate of 6.4%. Incorporating its dividend yield into its PEG, we get to a PEGY of 1.4. A mean target price of $24 on the sell side depicts that it has an upside potential of almost 39%, making it a must buy.
Conclusion
The United States still dominates the global silver industrial market, but China’s contribution over the last ten years has been staggering—its production has risen from 11% in 2002 to 18% in 2012. One of the key features of silver production in China has been its ability to produce silver at negative costs per ounce. Silvercorp metals has been benefiting from this for a couple of years and will continue to do so in the future as well. With the silver prices expected to increase at snail’s pace in 2013, low production costs would be the way to higher margins. In short, 2013 would be the year where silver giants would have to concentrate heavily on lowering production costs.
After the demand of industrial silver dropping in 2012, it’s expected to be back on track in 2013. However, it still needs more time before it starts to give silver prices a significant impetus. 2014 would be the year where this precious metal will start to shine once again. As of now, silver’s low price makes it a great bargain and these three giants are the way to go.
The article 3 Silver Stocks You Must Buy originally appeared on Fool.com and is written by Waqar Saif.
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