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What's the hottest commodity right now?
Nope, it's not oil nor is it gold.
Silver has taken center stage. Normally thought of as the working man's gold, silver has been outperforming gold for months.
Up 172% in the last year, and now near its 1980 all-time high, some are calling it a "mania", a "bubble" or that it has simply gone "parabolic."
Many Ways to "Play" Silver
Given the rally, many investors are suddenly interested in gold's cousin but think that it's too late to get in. And from the look of that SLV chart, it certainly seems that way.
But another option is to own silver mining companies.
Finding the Silver Companies
There aren't many large predominantly silver mining companies. Many miners operate in a variety of the metals or focus on gold or copper with silver as a secondary product.
The universe of silver companies, therefore, is fairly small. It is dominated by 5 larger companies, including one that is a streaming company and not even a miner.
1. Coeur d'Alene
2. Silver Wheaton
3. Hecla Mining
4. Pan American Silver
5. Silver Standard
Silver Standard is currently a Zacks #5 Rank (strong sell). Earnings estimates are falling for 2011 and 2012.
Obviously, we're not interested in a Zacks #5 Rank stock, so that leaves the other 4 as investment possibilities.
Silver is Hot, But the Silver Companies Are Not
With silver near record highs, the silver miners must be hot too, right?
That's the funny thing. While silver has been going "parabolic", the silver mining stocks have not.
While the silver stocks have been steadily rallying, none of the 4 remaining companies are even trading at 52-week highs.
A Buying Opportunity in Silver Stocks
So while silver is being described as a "mania" the same thing cannot be said of the stocks of the silver companies. This presents a buying opportunity.
Not only are the silver miners not yet trading at 52-week highs, they still have attractive valuations. Additionally, earnings growth is expected to explode in 2011.
Play Silver With These 4 Silver Stocks
Investing in silver companies is riskier than investing in the metal as the companies still have to mine the metal, worry about energy costs and employees, not to mention foreign governments.
But these four silver companies aren't expensive and are seeing rising earnings estimates.
1. Pan American Silver: earnings growth of 145%
2. Coeur d'Alene: earnings growth of 641%
3. Hecla Mining: earnings growth of 70%
4. Silver Wheaton: earnings growth of 136%
One source of risk with PAAS is with Bolivia's possible nationalization of some of the silver mines with a decision expected on May 1. PAAS said on Apr 19 it has not received any official notification from Bolivia's government officials that it will try and take control of its San Vicente mine. It's something to watch.
Pan American is trading at just 14.4x forward estimates. 1 estimate was raised for 2011 in just the last week pushing the 2011 Zacks Consensus to $2.57 from $2.49 per share. The company made just $1.05 in 2010.
2. Coeur d'Alene Mines ( CDE - Snapshot Report ) is a Zacks #2 Rank (buy). The company is the largest U.S.-based silver producer with mines in Bolivia, Mexico, Alaska and Nevada. Coeur d'Alene has said that its mines in Bolivia are, so far, not ones being affected by possible government re-taking.
It is the cheapest of the bunch, with a forward P/E of just 11.2 and a price-to-book ratio of 1.4.
2011 estimates have been jumping higher, with 1 upward revision in the last 7 days. The 2011 Zacks Consensus climbed to $2.89 from $2.77 in the last week. The company only made 39 cents per share in 2010.
3. Hecla Mining ( HL - Snapshot Report ) is a low-cost U.S. based silver producer that has been in business for 120 years. Its mines are in Alaska and northern Idaho. The company is a Zacks #3 Rank (hold).
Hecla is a little more expensive than some of the others, with a forward P/E of 18.
Analysts are bullish on 2011, with 2 estimates rising in the last week which pushed the 2011 Zacks Consensus up to 53 cents from 48 cents. The company made just 31 cents per share in 2010.
4. Silver Wheaton ( SLW - Snapshot Report ) is different than the others in that it is a streaming company and not a miner. It doesn't operate the silver mines themselves. This gives it some advantages.
How it operates is that it currently has 14 silver purchase agreements and 2 precious metal agreements where it pays an up front payment in exchange for the right to purchase all or a portion of silver production at a fixed cost. Outside of the up front payment, there are no ongoing capital expenditures which means it has large margins.
This Zacks #2 Rank (buy) has a forward P/E of 21.4 which makes it the most expensive of the group. Like the other companies, 1 estimate for 2011 has moved higher in the last week. The 2011 Zacks Consensus jumped to $1.96 from $1.88 in that time. It made just 83 cents per share in 2010.
[In full disclosure, the author of this article owns shares of PAAS and SLV.]
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