A pickup in the U.S dollar and concerns over a second wave of coronavirus in Europe dealt a blow to precious metal prices last week (ended Sep 25, 2020) with gold declining to two-month lows and silver prices slumping 14%. However, prices recovered some lost ground this week, supported by a pullback in the U.S. dollar. While silver futures for December delivery closed at $23.60 an ounce on Sep 28, gold futures for December delivery closed at $1,882.30 an ounce. Notwithstanding the dip, silver has yielded a gain of 32.6% year to date outshining gold’s rally of 23.7%.
Silver has more industrial applications than gold. In fact, industrial applications account for 60% of the global silver consumption. Consequently, demand for the metal waned with the industrial sector taking a major beating from the impact of the coronavirus pandemic in the earlier part of the year. Silver prices had plummeted to $11.68 an ounce in March — at 11-year lows.
However, silver bounced back and rode past $29 per ounce in August — levels last seen in 2013. The COVID-19 pandemic induced market uncertainty renewed interest in silver as an investment vehicle. Low interest rates, continued liquidity boosts by central banks and recovery in industrial demand also contributed to the rally.
Per the
Institute for Supply Management
, the U.S Manufacturing Purchasing Managers’ Index (PMI) after remaining below 50 (which indicates contraction) from March to May crossed the 50 mark in June. It has remained above 50 for three straight months now and was 56% in August — the highest so far in 2020. The IHS Markit US Manufacturing PMI for September 2020 increased to 53.5 from 53.1 in August — the strongest expansion in factory activity since January 2019.
The Caixin China General Manufacturing PMI rose to 53.1 in August 2020 from 52.8 in July, marking a major improvement in the sector since January 2011. The IHS Markit Eurozone Manufacturing PMI rose to 53.7 in September 2020 from 51.7 in August — the steepest expansion in the manufacturing sector since August 2018.
The pickup in industrial activity across the globe bodes well for silver. Apart from this, the white metal’s safe-haven appeal also remains strong. The uncertainty regarding the upcoming U.S. election will also continue to support safe-haven demand. Consequently, the Silver Institute predicts the global silver mine production to dip 7% in 2020 due to the mine closures on account of the pandemic. While demand remains strong, the shortage in supply will drive silver prices this year.
So far this year, the
Mining – Silver
industry has rallied 8.2%, outperforming the S&P 500’s growth of 2.4%. The industry falls under the broader
Basic Materials
sector, which declined 2.6%.
The industry currently carries a
Zacks Industry Rank
#49, which places it at the top 20% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
3 Industry Beating Stocks
Pan American Silver
PAAS
: This Vancouver, Canada-based company owns and operates silver and gold mines located in Mexico, Peru, Canada, Argentina and Bolivia. As the world’s second largest primary silver producer with the largest silver reserve base globally, it provides enhanced exposure to silver in addition to a diversified portfolio of gold producing assets.
After COVID-19 related suspensions at its Latin American operations, all operations are now operational, except for two polymetallic underground mines in Peru. The company expects to produce between 18.8 and 21.7 million ounces of silver this year. This along with rising precious metal prices and cost reduction efforts are likely to translate to strong cash flow generation in 2020. Also, divestiture of some non-core assets and efforts to lower debt levels bode well.
The Zacks Consensus Estimate for the company’s current-year earnings indicates year-over-year growth of 12.8%. The estimates have also moved up 5% in 30 days’ time. The stock has a trailing four-quarter earnings surprise of 66%, on average. The company’s shares have gained 36% so far this year, compared with the industry’s growth of 10%. The company has a long-term projected earnings growth rate of 14.4% and a Zacks Rank #1 (Strong Buy).
You can see
the complete list of today’s Zacks #1 Rank stocks here
.
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. Despite the pandemic, Hecla Mining reported its second highest quarterly silver production in second-quarter 2020 since 2016. 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. This year’s production from the mine is expected to double from last year and is set up to potentially double again next year. Upbeat production, lower costs and higher metal prices will bolster the company’s margins.
The Zacks Consensus Estimate for the company’s fiscal 2020 earnings suggests outstanding growth of 246% over the prior fiscal year. The earnings estimates have moved north by 36% over the past 30 days. The company has a long-term estimated earnings growth rate of 1%. The stock has gained 48% year to date, compared with the industry’s growth of 10%. It currently carries a Zacks Rank #2 (Buy).
Fortuna Silver Mines
FSM
: The company is engaged in precious and base metal mining and related activities in Latin America, including exploration, extraction, and processing. The Zacks Consensus Estimate for this Miraflores, Peru-based company’s 2020 earnings moved up 25% over the past 30 days. The company currently carries a Zacks Rank #2. Its shares have gained 56% year to date, outperforming the industry’s growth of 10%.
The company operates the Caylloma silver, lead, and zinc mine in southern Peru, the San Jose silver and gold mine in southern Mexico, and is constructing an open pit gold heap leach mine at its Lindero property in northern Argentina. Construction at the Lindero gold Project is approximately 97% complete as of Jun 30, 2020 and its first gold pour is expected at the end of the third quarter. Cost reduction initiatives implemented during the second quarter and higher metal prices will aid margins in the balance of 2020.
Investors may also keep an eye on Avino Silver
ASM
and Great Panther Silver Limited
GPL
, both of which carry a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for First Majestic Silver and Great Panther Silver’s current fiscal year’s earnings suggests year-over-year growth of 133% and 76%, respectively. Shares of Avino Silver and Great Panther Silver have gained 80% and 75%, respectively, so far this year, outperforming the industry.
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