Silver's wide variety of applications in numerous fields make it a highly demanded precious metal. On top of that, silver provides a hedge against market risks and inflation. With the price of silver almost half its 2011 levels, I believe that some silver stocks are offering great value for your money. I have picked my top four silver stocks which have stronger fundamentals than their peers and that I expect to outperform in 2012.
Silver Wheaton Corporation (SLW) is a silver streaming company that purchases gold and silver. It has a market capitalization of $12.6 billion. Currently, the company's stock is trading near $36 per share. Silver Wheaton generated a profit margin of 88% and a return-on-equity of 26.9%. It has a debt-to-equity ratio of 3.4 and a dividend yield of 1%. Silver Wheaton reported a gross margin of 87.7% and an operating margin of 75.8% in its third quarter call. The company reports full-year results on March 23 after the close. Its competitor, Coeur d'Alene Mines Corporation (CDE), reported a gross margin of 57.4% and an operating margin of 17.2%. Coeur d'Alene has a higher price-to-earnings ratio of 33.5 versus 21 reported by Silver Wheaton. Silver Wheaton recently crossed their 200 day moving average and has seen a five year earnings per share growth of around 40%. The company saw its revenues and operating cash flows double in the third quarter of 2011.
Pan American Silver Corporation (PAAS) explores for, extracts, and develops silver. It has a market capitalization of $2.4 billion. The company's stock is trading around $23 per share. It has a profit margin of 42.4% and a return-on-equity of 23%. It has a debt-to-equity ratio of 2.7. Pan American Silver is offering a small dividend yield of 0.4%. The company's fourth quarter conference call is on February 23. On November 8th of last year the company reported a 66% increase in net earnings year-over-year, but that still did not meet analyst expectations of $0.78 ($0.42 actual). Expectations are down to $0.51 for the fourth quarter, which I think can be beaten. Investors underappreciate the value locked in Pan American's Hog Heaven US mines which act as "peaker" production when silver prices spike. BHP Billiton Ltd. (BHP), a competitor, sports a price-to-earnings of 9.4 times versus Pan American's 7.1. BHP Billiton also has a higher five year expected price-to-earnings-to-growth ratio of 1.8 versus 0.9 reported by Pan American. This value shows that the future earnings growth of Pan American can be bought at a relatively cheaper price. Pan American is quite a bargain at its current price.
Hecla Mining Corporation (HL) acquires, develops, and produces silver, gold, lead, and zinc. Hecla Mining has a market capitalization of $1.5 billion. The company's stock is currently trading around $5 per share. It reported a profit margin of 24% and a return-on-equity of 11.9%. It also offers a dividend yield of 1.5%. The next earnings call is on February 21. Last quarter's earnings reported in November saw earnings of $0.11 against estimates of $0.13. For this next release, expectations stand at only $0.07. Analysts are underestimating the company at this point given Lucky Friday production figures. Hecla Mining Corporation generated a gross margin of 66.5% and an operating margin of 52%. Barrick Gold Corporation (ABX) on the other hand, generated a gross margin of 62% and an operating margin of 46.5%. Barrick Gold has a higher price-to-sales ratio of 3.7 versus 2.9 reported by Hecla Mining. Hecla Mining's price-to-earnings ratio of 12.9 is lower than the industry's average of 23. Hecla Mining is currently cheaper than most of its competitors. It is also poised to continue its silver mining operations for years to come. I believe that the company's Greens Creek district, with a projected mine life of 22 years is certainly going to help the company keep its positive valuations.
Silver Standard Resources, Inc. (SSRI) explores for and produces mineral resource properties. It has a market capitalization of $1.4 billion and its stock is currently trading around $17 per share. Silver Standard generated a profit margin of 250% and a return-on-equity of 55.5%. Third quarter results saw Silver Standard lower its estimates for Pirquitas production and trumped estimates of $0.11 with a $0.27 EPS. For the latest full fiscal quarter the estimate stands at $0.01 due to long-term sale contract negotiations. Spot activity looks solid with one million tons of silver concentrate likely to be reported as revenues for this latest quarter (out of two million for January delivery). Grupo Mexico SAB de CV (GMBXF.PK) is a competitor of Silver Standard. Silver Standard has a lower price-to-earnings ratio of 3 versus 10.8 reported by Grupo Mexico. Silver Standard's five year expected price-to-earnings-to-growth ratio of 0.15 is significantly lower than that of BHP Billiton's at 1.8. These ratios indicate that Silver Standard is trading at a cheaper price than its peers. With gold and silver prices expected to continue trending upwards, I believe that Silver Standard is a cheap stock that is poised to deliver in 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.