Precious metals related stocks have been under selling pressure all year, but smart investors are having a field day scooping up some of these best "bargain" silver stocks to buy right now.
Companies that mine gold and silver have seen their stock prices punished as the metals' prices have declined. So far this year gold is down 18% while silver prices have been punished even more severely, falling 28%.
The metals had experienced a multiyear strong run as fears of contrary instability and potential inflation drove investors into metals and miners alike. As the economy has shown signs of stabilizing and inflation concerns remain subdued, the rally has stalled.
The mining stocks have been hit even harder as marginal capacity became too expensive to maintain and profits fell sharply.
Now we appear to have reached an unsustainable condition in the price of silver mining stocks.
The total cost of producing an ounce of silver is estimated by some analysts to be as high as $24 an ounce. When this happens marginal capacity is forced out of the market place as higher cost mines are simply shuttered rather than run at a loss. Plans for expansion or exploration are delayed or eliminated and the level of production decreases.
We are seeing this in silver right now.
Although first-quarter silver production was up slightly year over year, it was down compared to the fourth quarter of last year.
Eventually the production decline puts in a price floor for the metal and demand will once again exceed supply. When this happens the surviving silver mining companies should do very well.
Silver mining stocks may face additional pressures in the short term but as marginal capacity is phased out supply reductions should lead to higher metal prices and higher profits. It may take some time for this to begin but it appears that that silver mining stocks are now cheap enough when compared to their asset value to represent a long-term bargain.
Of course if we get any signs of inflation or geopolitical unrest metal prices and stock values could increase much faster than anticipated.
Three "Bargain" Silver Stocks to Buy Now
The first on our "bargain silver mining stocks to buy now" list is one our own analyst David Mamos recently profiled...
#1 Bargain Silver Mining Stock to Buy
Coeur Mining Inc.(NYSE: CDE) is the largest silver miner in the United States. Although the company owns mining properties in Latin America and Australia, it has focused on domestic operations to escape the political risks often associated with mines in foreign countries.
As Mamos explained earlier this week, the key to Coeur profits is in the company's most proven mines and their future prospects. The company has a number of mines posting strong productions results expected to increase in 2013.
The company is in good shape with a strong balance sheet and has been reducing costs to offset the falling price of silver. Management has also been taking advantage of the current low stock price to buy back shares at less than tangible book value.
The stock currently trades for just 60% of its book value and is still profitable in the current tough marketplace. Any firming of silver prices should cause the shares to rally sharply back towards the 52-week highs in the low $20s. [Here's the full recent analysis of Coeur.]
#2 Bargain Silver Mining Stock to Buy
Hecla Mining Co. (NYSE: HL) trades for just 90% of tangible book. The company is primarily a silver miner but also produces zinc, lead and gold.
Hecla just took advantage of weak industry conditions to purchase a third mining operation and that will increase gold production levels going forward. Gold production should be 39% of the total for the rest of the year with silver at 38% and the balance consisting of lead and zinc.
The company has very little long-term debt and is financially strong enough to weather the current market disruptions. The company was founded in 1891 so swings in the gold and silver markets are not a new experience for Hecla and its management.
#3 Bargain Silver Mining Stock to Buy
Pan American Silver Corp. (Nasdaq: PAAS) has operations in the United States and Latin America. The company mines copper, zinc and gold in addition to its core silver mining operations.
In spite of falling metal prices and rising costs the company has been able to generate cash flow in excess of its costs and has been using the cash to reward shareholders. Management recently hiked the dividend by more than 150% and the stock currently yields 4.22%.
Pan American also has a very strong balance sheet with more than $500 million of cash on hand and very little long-term debt. The company has lower mining costs per ounce than many of its competitors and this should give it a competitive advantage in the difficult silver market.