Are Silver Mining Stocks Attractive amid a Bullion Rally?



Gold stole the focus recently as investors took shelter under traditional safe-haven investments. Because commodities generally have a low correlation with the equity markets, they act as a hedge against a market downturn. Along with some prominent gold names, top silver stocks have also had a steep rally recently.

Gold prices have been rallying since last December, which drove gold mining companies as well. Silver has also shown a decent uptrend since December. Easing trade relations with China was one of the important factors driving silver prices. Could silver miners see similar movement going forward?

Article continues below advertisement

Top silver miners

Among the top silver miners in the US, Pan American Silver (NASDAQ:PAAS) and Wheaton Precious Metals have shown a smart uptrend since mid-2019. Both stocks have rallied more than 50% in the last 12 months.

Although Wheaton Precious Metals is no longer a pure-play silver mining company, it has a large exposure to silver. Pan American Silver and Wheaton stocks collectively form 28% of the Global X Silver Miners ETF (NYSEARCA:SIL). SIL is up about 26% in the last 12 months.

Rising geopolitical tensions pushed gold prices up to an almost seven-year high this week. Whether silver follows a similar trend remains to be seen. Gold (NYSEARCA:GLD) and silver prices normally show a strong positive correlation. They have exhibited a correlation of 0.8 in the last 10 years.

Higher prices could aid silver miners’ earnings in 2020

In 2020 so far, the strong bullion prices have given a strong start for miners as well as for investors. Mining companies’ earnings could also benefit due to higher silver prices. Pan American Silver had a robust 2019 in terms of revenues. However, its bottom line foundered in the nine months ended September 30, 2019.

According to analysts’ estimates, PAAS is expected to report revenues of $418 million for Q4 2019, more than double than in Q4 2018. Interestingly, this strong performance is expected to impact its bottom line as well. Analysts expect its Q4 2019 net income to reach $43 million compared to marginal losses in the fourth quarter of 2018.

Article continues below advertisement

Although Wheaton Precious Metals struggled in the first half of 2019, it did better in Q3 2019. In Q4 2019, analysts expect revenue of $248 million, representing 26% growth year-over-year. Based on estimates, its net income is expected to be close to $81 million in Q4 2019, more than double than its net income in Q4 2018.

Read more about top gold miner stocks in How Do Barrick Gold and Newmont Goldcorp Stack Up?

Analysts’ price targets

According to estimates, Pan American Silver Corp. stock has a mean target price of $22.50 against its current market price of $23.50. This indicates a downside of more than 4% for the next 12 months.

Among the 10 analysts tracking PAAS stock, six recommended a “buy,” three recommended a “hold,” and one recommended a “strong buy.” None of them recommended a “sell.” BMO Capital increased Pan American Silver’s target price from $24 to $26 last month.

Wheaton Precious Metals stock has a mean price target of $35.10 for the next year, based on analysts’ estimates. This indicates a potential upside of approximately 20% against its current market price of $29.40. Of the 14 analysts tracking WPM stock, 10 analysts recommended a “buy,” three recommended a “strong buy,” and one recommended a “hold.” None of these analysts recommended a “sell” through January 8.

For more on precious metals trends, please read Where Could Gold Prices Head in 2020?


More From Market Realist