The silver market has seen volatile price swings as the market recovers from the epic collapse of 2008 while still navigating an iffy macroeconomic environment. Silver jewelry production for North American and European consumers has been sluggish due to an overall decrease in demand, while demand in places like India and China has grown aggressively. With a fractured supply market where scores of relatively small mining companies compete for their market share, investor opportunities and landmines are plentiful.
Below, I explore five silver stocks, all with stories for generally positive outlooks, which could be profitable in 2012. I chose these five silver stocks for discussion because they all present a great entry point for investors looking to get into the silver market.
The first company on my list is First Majestic Silver Corp (AG) which has come in with a recent price near $19, within a 52-week trading range of $12.98-$26.88. The company has a market capitalization of $1 billion. Its earnings per share of $0.94 equates to a price to earnings ratio of 20.49. The company's share valuation appreciated 37% within the last year, while its 2011 silver production saw record levels of 7.6 million ounces. It also has a more diversified product mix, with gold, zinc, iron ore, and diamonds providing some coverage for silver's manic price fluctuations. First Majestic is a solid choice for any investor looking for a play of silver.
An even stronger alternative is Silvercorp Metals Inc (SVM), which stands at a recent price near $7 within its 52-week trading range $5.68-$16.32. It has a $1 billion market capitalization and earnings per share of $0.45, which calculates to a price to earnings ratio of 15.69. Silvercorp has the highest gross profit margins of this group at an impressive 75%. This is due in part to its operations being less based in North American mines and more in some important operations located in China. This gives it a huge leg up in tapping into the lucrative Asian markets for at least the next ten years. The company has no debt and pays an annual dividend of 10 cents. This presents a strong buying opportunity for investors, with opportunity for long term growth.
Silver Standard Resources Inc (SSRI) recently traded above $16, near the low end of its 52-week trading range between $12.39-$35.94.The company has a market capitalization of $1 billion. The earnings per share comes in at a breathtaking $5.68, for a microscopic price to earnings ratio of 2.90. Unlike First Majestic, this company is a pure silver play, as it derives 94% of its revenue from silver production. It is also more of a reserve play, since its proven reserves far surpass any other company's in this screen, but only produces around 8.2 million ounces per year. The problem here is that the company has shown incredibly high cost rates in opening its Pirquitas mine, near $20 a share, and those costs have made investors flee in droves. The company will be a massive winner if it gets its costs under control, which I expect will happen as the company settles into its new operations. Investors who do not mind some risk may want to jump in now. More risk-averse investors probably should watch this stock for a quarter or two to see if management does get costs under control.
Coeur dÁlene Mines Corporation (CDE) had a recent price of $27.01 within its 52-week trading range $19.30-$37.59. It is the biggest of this group with a $2 billion market capitalization, although it has no meaningful earnings after reporting losses for the three years. However, it did show gains of $82 million in the first three quarters of 2011 and seems to be finally turned around. The stock valuation has been steadily moving higher throughout the turnaround process, rising from $7 per share to $26 between early 2009 and the start of 2012. I believe solid growth should continue and its share price should continue to rise as it establishes an ever increasing profit.
Finally we look at Endeavour Silver Corporation (EXK), which comes in at a recent price just below $11 in a 52-week trading range of $6.65-$13.10. Endeavor is the smallest market capitalization of this group at $857 million, with earnings per share of $0.33 for a price to earnings ratio of 32.18. Endeavor has a similar story as Coeur dÁlene as it rebound from losses and has shown growing profits since 2010. Endeavor was never as depressed as its peer and is farther along its profitability curve, having six consistently growing profitable quarters in a row. Endeavor should also show good rising share value but with slightly more security.
All five of these stocks have positive stories and could make good investments for 2012. I pick Silvercorp as best overall due to its advantageous exposure to Asian markets . However, investors willing to take more of a flyer may take a long look at Silver Standard Resources since its price is beaten down so low and its large proven silver reserves make it a wonderful value play.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.