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Every year, I like to give my top silver stock picks for the upcoming year, in tandem with my top gold stock picks. My goal is to outperform not only the physical price of silver (NYSEARCA:SLV) but also silver miners as a whole, and I use the global X Funds silver miners index (NYSEARCA:SIL) as a benchmark; this ETF contains numerous silver stocks, but there are more than a few names I do not like in the SIL (such as Tahoe Resources (NYSE:TAHO) and a non-silver stock, Alamos Gold (NYSE:AGI)), so I've avoided buying it.
Silver stocks give investors big leverage to the price of silver, plain and simple. As a rough example, I've estimated in the past that every 10% gain in silver prices should net you approximately 30% or greater gains in silver miners; last year, a 20% rise in silver prices resulted in a gain of over 90% in the SIL. Of course, this works both ways, as a 10-20% drop in silver prices can also result in a 30% loss, or greater.
Related: Summary of the performance my top gold stock picks for 2017.
(Credit: Macrotrends. The price of silver trades below $16 an ounce as of writing)
Silver has had a rough year and has underperformed gold. As I pointed out in a recent article, while I’m still bullish on silver long term and think its gains could eventually exceed gold (for various reasons, including the low investment amount required vs. gold), I think gold is the better bet in the short to medium term. There is just too much uncertainty surrounding silver demand in the short term, and the metal is so volatile that I'm having a tough time recommending silver stocks at the present time. With gold, I know the supply-demand picture is a bit more stable in the short term as there's more gold demand from central banks, ETFs such as the SPDR Gold Trust (NYSEARCA:GLD), and institutional investors - as well as jewelry, which makes up 46% of total gold demand, according to the World Gold Council.
Having said that, some silver stocks have sold off a bit too much in my opinion and could be good buying opportunities at present but only for investors willing to take the risk and stomach the volatility. Here's a look at how some of my top silver stock picks for 2017 have turned out so far.
Again, silver stocks are highly volatile and prone to large price swings. I think investors should try to use this volatility to their advantage if they can. This means you can try to buy stocks on dips and then sell on upswings. Dollar-cost averaging is another smart strategy, as you can buy the stock in increments instead of all at once, lowering your average share cost over time.
2017 YTD Recap
The performance listed here is from the date of article publication (December 5) to the current date (July 13); SLV is down 6% since then, while the SIL is down 10%, so it has been a rough year compared to gold, which is up 5.6%, and gold miners (GDX).
Unfortunately, these picks have mostly underperformed as they are leveraged to the price of silver and have had a tough time producing positive earnings, with several miners experiencing production issues in Mexico. Here's a recap below.
#5 Coeur Mining (NYSE:CDE)
As previously stated, Coeur gives investors big leverage to silver, and that works both ways, as Coeur has fallen by 25.49% since article publication.
I thought Coeur reported pretty strong Q1 financial results, as I pointed out in this article. However, there have been some challenges lately. Along with lower silver prices, the company recently released Q2 production results and has guided for between 37.8 million and 40.7 million SEOs of production for 2017. While there has been higher gold production at its Wharf mine, its San Bartolome mine has struggled with lower silver production due to drought conditions. We'll see how this affects Coeur's earnings and cash flow.
I'll be covering Coeur's second quarter results to be released on July 26 and will give my updated thoughts on the stock at that point in time. I'll be analyzing Coeur's costs, updated 2017 production, and cash cost guidance, and its balance sheet.
#4 Endeavour Silver (NYSE:EXK)
Endeavour is down by 29.45% and has disappointed; it's a smaller silver producer than Coeur and produces less gold, so the company is more exposed to a drop in silver prices.
Endeavour recently announced it produced 2.1 million SEOs in Q2; production was lower in Q2 2017, compared to Q2 2016 due to differences in the annual mine plans, according to the company. However, production was higher this quarter than last due to improved performance of the Bolañitos and El Cubo mines. The company also confirmed its intentions to develop El Compas into its fourth mine, and work is now under way on developing the mine ramp to access the orebodies. Permits for its Terronera project are also expected later this year.
Fellow SA author Quad 7 Capital Endeavour Silver: You Are All Missing This: "...when I look at the price of this stock relative to its assets, the name still looks attractive here. The good news is that the company has acquired more development projects for the long-term, but 2017 is a transition year."
I agree with him here, and while I think the stock could go lower in the short term, this stock is still a solid long-term buy at prices under $3.
Financial results will be released on August 3.
#3 Great Panther Silver (GPL)
Great Panther is down by 16.9% and is one of my top picks on this list currently. Its Q2 production results were strong, as the company's metal production rose 6% to a record 1.1 million SEOs - a company record. Topia's production increased 47% to 386K ounces. Milling operations returned to design capacity in Q2, following the commissioning of the new tailings handling facility and the upgraded processing plant.
As for its outlook, Great Panther has maintained guidance of 4.0-4.1 million SEOs for 2017, with AISC expected to range between $14 and $16 an ounce.
As I stated originally, Great Panther's ability to maintain low cash costs, the strength of its balance sheet, its growth prospects, and its leverage to silver prices are the main reasons I have put the silver miner at #3. This hasn't changed. With no long-term debt and $53.2 million in cash (as of the last quarter), the company is in strong financial shape. Its current production and growth from the Coricancha project gives it the potential to grow annual production to 7 million SEOs by 2020.
I would put Great Panther at the top of this list of silver miners that could outperform for the rest of the year due to its strong net cash position, solid production results, and potential to beat on cash cost guidance.
#2 Hecla Mining (HL)
Hecla's stock is down approximately 19% since article publication. As I stated in May, the company had a surprisingly strong first quarter earnings despite a mine strike at its Lucky Friday mine. However, it's going to impact the company's production and earnings going forward. Previously, full-year guidance at Lucky Friday called for 8.1 to 8.6 silver equivalent ounces of production, making up approximately 17-18% of Hecla's total annual production. Full-year guidance has been suspended.
On June 28, Hecla provided preliminary second quarter results. The company expects a net loss in the range of $2-8 million. This isn't too surprising.
"Production, sales and Adjusted EBITDA are lower than the metrics recorded in the first quarter due in part to lower silver, lead and zinc prices, the expected lower grade at Greens Creek, and the ongoing strike at Lucky Friday."
The company also said that it will meet with the workers striking at Lucky Friday in early July.
I'm still a fan of Hecla over the long term. I like the company's growth potential, as it owns a massive silver reserve base (170 million ounces), plus long-term development projects containing an addition 331 million silver ounces in resources. In the short term, the stock could go lower, and I'd wait to see a resolution of the Lucky Friday strike before considering an investment.
#1 First Majestic Silver (AG)
I recently provided coverage on First Majestic's recent production issues, so I will not go into too much detail here. Silver production in Q2 was impacted by "unusual efforts by unionized workers to illegally disrupt mining activities which caused minor stoppages at La Parrilla, Santa Elena and a more serious stoppage at our La Encantada operation," according to the company's CEO. Production fell by 16% from Q1.
As mentioned previously, earnings will be released on Thursday, August 3, and I will be analyzing the results and providing analysis then to my subscribers.
In conclusion, while I personally continue to focus more on gold miners than silver in the short to medium term, there are a few names on this list I think could be solid buys here now or in the future. I think investors should be careful and know the risks of investing in these stocks and use dollar cost averaging to their advantage.
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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in GPL 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.