The silver industry has been the worst performer so far in 2013, the total return year to date (04/26/2013) was negative at -36.7%, while the appreciation of the Russell 3000 index in the same period was at 11.73%. Nevertheless, there are highly profitable companies that pay rich dividends among the silver companies, and when the silver price increase resumes, an extraordinary capital gain could be expected.
An indication that the price of silver can pick up early is the condition of the silver coins' market. Premiums on Silver Eagles are reportedly soaring as the coins are said to be increasingly more difficult to get. A Kitco article notes that premiums have doubled in the past few weeks and in some case are up by 40%.
In this article, I recommend three silver stocks that have compelling valuation metrics and big upside potential based on their consensus mean target price. These stocks also pay solid dividend. All the data for this article is from Yahoo Finance and finviz.com on April 27.
Pan American Silver Corp. (NASDAQ:PAAS)
Pan American Silver Corp. explores, develops, and operates silver producing properties and assets.
Pan American Silver has almost no debt at all (total debt to equity is only 0.03), and it has a trailing P/E of 19.23 and a very low forward P/E of 9.76. The forward annual dividend yield is quite high at 3.94%, and the payout ratio is only 29%.
The company is trading 43.8% below its 52-week high and has 54.6% upside potential based on the consensus mean target price of $19.62.
On February 21, Pan American Silver reported its results for the fourth quarter and full year of 2012, which were in-line on EPS and missed expectations on revenues.
Fourth-quarter 2012 Highlights
Silver production of 6.9 million ounces, an increase of 29%.
Gold production of 32,400 ounces, an increase of 88%.
Consolidated cash costs of $11.75 per ounce of silver, net of by-product credits.
Mine operating earnings of $85 million.
Recorded a $100 million non-cash impairment charge on the carrying value of the Navidad project.
Net loss of ($29.4) million or ($0.19) per share.
Adjusted earnings of $55.8 million or $0.37 per share.
Operating cash flows before changes in non-cash operating working capital of $86.1 million or $0.57 per share.
Revenue of $247.3 million.
In the report, Geoff Burns, president & CEO commented on the fourth quarter and fiscal 2012 results:
As I said when we released our production results several weeks ago, 2012 was an excellent production year. We met our targets for silver production and cash costs during the fourth quarter for the full year, and in the process we set new quarterly and annual production records for silver and gold. It is rewarding to deliver financial results that echo our production performance. Adjusted earnings for the year were a very healthy $1.26 per share and operating cash flow was also robust at $1.53 per share. As a consequence of our expected continued excellent financial performance, the Board has agreed to decisively increase our quarterly dividend from $0.05 to $0.125 per share, a clear testament to the strength and profitability of Pan American. We are expecting 2013 to be even better, as we are forecasting increases in both our silver and gold production, while our cash costs per ounce should remain basically unchanged.
The cheap valuation metrics, the solid dividend, the 43.8% upside potential based on the consensus mean target price of $19.62, and the fact that the stock is trading way below book value (price to book value is only 0.71) make PAAS stock quite attractive.
Silver Wheaton Corp. (SLW)
Silver Wheaton Corp., together with its subsidiaries, operates as silver and gold streaming company worldwide. The company has 20 long-term purchase agreements associated with silver and gold relating to 23 mining assets.
Silver Wheaton has almost no debt at all (total debt to equity is only 0.02), and it has a very low trailing P/E of 14.32 and a very low forward P/E of 11.87. The PEG ratio is very low at 0.41, and the average annual earnings growth estimates for the next 5 years is very high at 35%. The forward annual dividend yield is at 2.37%, and the payout ratio is only 21%. Analysts recommend the stock. Among the twelve analysts covering the stock, four rate it as a strong buy and eight rate it as a buy.
The company is trading 42.4% below its 52-week high and has 89.5% upside potential based on the consensus mean target price of $44.7.
The compelling valuation metrics, the solid dividend, the strong analysts' recommendation and the 89.5% upside potential based on the consensus mean target price of $44.77, are all factors that make SLW stock quite attractive.
Silvercorp Metals Inc. (NYSE:SVM)
Silvercorp Metals Inc., together with its subsidiaries, engages in the acquisition, exploration, development, and mining of precious and base metal properties in China and Canada.
Silvercorp Metals has no debt at all, and it has a trailing P/E of 15.83 and a very low forward P/E of 6.79. The forward annual dividend yield is at 3.51%, and the payout ratio is only 56%.
The SVM stock is trading 59% below its 52-week high, and has 164% upside potential based on the consensus mean target price of $7.53.
On February 13, Silvercorp Metals reported its unaudited financial and operating results for the third quarter of fiscal 2013.
Silver production of 1.52 million ounces;
Gold production of 5,676 ounces;
Sales of $58.7 million;
Adjusted net income of $14.9 million, or $0.09 per share;
Cash flow from operations of $27.8 million, or $0.16 per share;
Cash cost of negative $0.17 per ounce of silver at the Ying Mining District;
Payment of $4.3 million, or CAD$0.025 per share, in quarterly dividends to shareholders;
Reported high grade silver-lead-zinc intercepts from the SGX mine and the GC project.
The compelling valuation metrics, the solid dividend, the good third quarter fiscal 2013 financial results, and the 164% upside potential based on the consensus mean target price of $7.53, are all factors that make SVM stock quite attractive.
SVM Dividend data by YCharts
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SLW over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.