Driven by a solid green economy, with investments in photovoltaics, 5G networks, and rapid adoption of electric vehicles, silver industrial demand is expected to remain robust, boosting the silver industry’s growth. So, let’s analyze if you should buy or hold silver stocks Pan American Silver (PAAS), Fortuna Silver (FSM), and Gatos Silver (GATO) for growth this year. Read on to know more….
Silver is expected to experience significant demand, with its end uses ranging from jewelry and silverware to industrial and technological applications. In the long term, silver industrial demand will likely benefit from widespread vehicle electrification, the growing adoption of 5G technologies, and the advancement in the solar energy sector.
Amid this backdrop, it could be wise to invest in fundamentally sound silver mining stock Fortuna Silver Mines Inc. (FSM) for solid growth in 2024. However, investors could hold Pan American Silver Corp. (PAAS) and Gatos Silver, Inc. (GATO) and wait for a better entry point in these stocks.
Silver is known as one of the most versatile precious metals, and it witnesses robust demand in multiple end-use applications, including industrial fabrication, jewelry and silverware manufacturing, physical investment, photovoltaic cells (PV), and more. Silver is a popular metal for jewelry because of its luster, affordability, and durability.
The demand for silver in the form of bullion coins and silver bars has sharply increased in recent times, as it is historically considered a store of value and a hedge against inflation. Investors generally turn to silver to preserve their wealth.
In 2023, silver industrial demand has achieved a new annual high, as reported by the Silver Institute. Industrial demand for silver is anticipated to grow 8% to a record 632 million ounces last year. Primary growth drivers include increased investment in photovoltaics, power grid and 5G networks, growth in consumer electronics, and high vehicle production.
A report by Oxford Economics for the Silver Institute expected silver industrial demand to increase 46% through 2033, while jewelry and silverware demand is projected to grow 34% and 30%, respectively.
According to a report by the Business Research Company, the silver ore market is expected to reach $11.40 billion by 2028, growing at a CAGR of 8.8%. Silver’s use in electric vehicles (EVs) and solar panels will gain immense momentum in the upcoming years. Solar panels have been gaining traction amid the global green energy transition.
The global solar PV panels market is projected to total $287.13 billion by 2030, expanding at a CAGR of 7.7% from 2024 to 2030. A significant surge in solar power installation will drive silver demand.
Growing silver demand, especially from the industrial sector, tight supplies, and expectations of interest rate cuts by the Federal Reserve in 2024 could push silver prices high this year. JPMorgan forecasts silver will cross the $30 per ounce mark anytime soon in 2024.
Given these favorable trends, let’s look at the fundamentals of the three Miners – Silver stocks, beginning with number 3.
Stocks to Hold:
Stock #3: Pan American Silver Corp. (PAAS)
Headquartered in Vancouver, Canada, PAAS is involved in the exploration, mine development, extraction, processing, refining, and reclamation of silver, gold, zinc, lead, and copper mines in Canada, Mexico, Peru, Argentina, and Bolivia. The company holds interest in the La Colorada, Dolores, Morococha, La Arena, Timmins West, Bell Creek, San Vicente, and Cap-Oeste Sur Este mines.
On November 6, 2023, PAAS completed the previously announced sale of its 57.74% interest in Agua de la Falda S.A. (ADLF), a Chilean company that holds the historical Jeronimo project located in the Atacama region of northern Chile, and various adjoining concessions.
Also, in September, PAAS completed the previously announced divestment of its 56.25% interest in the MARA project in Argentina and its 92.3% interest in the Morococha mine in Peru. The sale of these non-core assets is aligned with the company’s stated aim of optimizing its portfolio and reducing debt and future financial obligations.
PAAS’ trailing-12-month gross profit margin and EBITDA margin of 30.15% and 25.09% are favorably higher than the industry averages of 28.53% and 17.54%, respectively. But the stock’s trailing-12-month net income margin of negative 11.13% compared to the industry average of 5.88%.
In terms of forward non-GAAP PEG, PAAS is trading at 1.37x, 18.8% lower than the industry average of 1.69x. However, the stock’s forward EV/Sales and Price/Sales multiples of 2.60 and 2.58 are higher than the industry averages of 1.65 and 1.24, respectively.
PAAS’ revenue and EBITDA grew at respective CAGRs of 19.3% and 14.7% over the past five years. Additionally, the company’s total assets rose at a CAGR of 30.3% over the same timeframe.
In the third quarter that ended September 30, 2023, PAAS’ revenue increased 81.9% year-over-year to $616.30 million. Its mine operating earnings were $61.90 million, compared to mine operating loss of $21.80 million in the same period of 2022. Also, net cash generated from operating activities came in at $114.60 million, up 110.7% year-over-year.
Furthermore, the company’s adjusted earnings stood at $3.10 million, or $0.01 per share, compared to an adjusted loss of $2.80 million, or $0.01 per share a year ago, respectively.
Analysts expect PAAS’ revenue and EPS for the fiscal year (ended December 2023) to increase 54.6% and 142.2% year-over-year to $2.31 billion and $0.22, respectively. However, the company has missed the consensus revenue estimates in three of the trailing four quarters.
For the fiscal year 2024, the company’s revenue and EPS are estimated to grow 17.6% and 240.1% year-over-year to $2.72 billion and $0.74, respectively.
Shares of PAAS have gained 7.4% over the past six months to close the last trading session at $15.92. However, the stock has plunged 7.3% over the past year.
PAAS’ POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PAAS has a B grade for Growth. It also has a C grade for Value and Quality. It has ranked #7 out of 11 stocks in the Miners – Silver industry.
To see the other ratings of PAAS for Momentum, Sentiment, and Stability, click here.
Stock #2: Gatos Silver, Inc. (GATO)
Based in Vancouver, Canada, GATO engages in the exploration, development, and production of precious metals. The company explores for silver deposits. Also, it explores for zinc, lead, copper, and gold ores. Its flagship asset is the Los Gatos District, including the Cerro Los Gatos mine in Chihuahua, Mexico.
Over the past three years, GATO’s tangible book value grew at a CAGR of 42.7%. Moreover, the company’s total assets improved at a CAGR of 38.5% over the same period.
GATO’s trailing-12-month ROCE, ROTC, and ROTA of 1.52%, negative 4.90%, and 1.39% compared to the industry averages of 7.61%, 5.47%, and 3.31%, respectively.
In terms of forward EV/EBITDA, GATO is trading at 5.30x, 38.4% lower than the industry average of 8.60x. Also, its forward Price/Cash Flow multiple of 5.61 is 34.2% lower than the industry average of 8.53. However, the stock’s forward non-GAAP P/E of 91.69x is significantly higher than the industry average of 16.68x.
During the third quarter that ended September 30, 2023, GATO’s revenue decreased 9.3% year-over-year to $67 million. The company’s EBITDA declined 21.4% from the year-ago value to $31.20 million. But its net income came in at $15 million, an increase of 15.4% year-over-year.
GATO raised its full-year 2023 guidance for silver production and silver equivalent production because of good operational performance in the first month of the fourth quarter and the recent optimization of the mine plan. The company now expects silver production to be between 8.8 and 9.3 million ounces, compared with the prior guidance of 7.4 to 8.2 million ounces.
Further, silver equivalent production is now expected to be between 13.8 and 14.6 million ounces, compared with the original guidance of 12.4 to 13.8 million silver equivalent ounces. Silver and silver equivalent production guidance for full-year 2023 is increased by 16% and 8%, respectively, based on the midpoint of each guidance range.
Street expects GATO’s revenue for the fiscal year (ended December 2023) to decline 24.6% year-over-year to $235 million. The consensus EPS estimate of $0.06 for the same period indicates a decline of 71.4% year-over-year.
GATO’s stock has gained 50.9% over the past six months and 42.5% over the past year to close the last trading session at $6.14.
GATO’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
The stock has a B grade for Growth. It has a C grade for Quality, Value, and Stability. GATO is ranked #5 out of 11 stocks in the Miners – Silver industry.
Click here to access additional GATO ratings for Sentiment and Momentum.
Stock to Buy:
Stock #1: Fortuna Silver Mines Inc. (FSM)
FSM engages in precious and base metal mining in Argentina, Burkina Faso, Mexico, Peru, and Côte d’Ivoire. It holds interest in the Caylloma silver, lead, and zinc mine located in southern Peru; the San Jose silver and gold mine located in southern Mexico; the Lindero gold project located in Northern Argentina; and so on. The company is based in Vancouver, Canada.
On October 30, 2023, FSM announced that the Mexican Federal Administrative Court ruled in favor of Minera Cuzcatlan, Fortuna’s Mexican subsidiary and re-instated the 12-year environmental impact authorization for the San Jose Mine.
Also, on September 20, FSM completed the acquisition of Chesser Resources Limited (CHZ). This acquisition will expand Fortuna’s presence in West Africa by including the preliminary economic assessment stage Diamba Sud Gold Project in Senegal, a new and emerging gold discovery in the region.
“We look forward to integrating Diamba Sud into our global portfolio, focusing on exploration to unlock value, and partnering with the local communities and stakeholders as we continue to advance the project,” said Jorge A. Ganoza, President and CEO of FSM.
PAAS’ trailing-12-month EBITDA margin of 37.82% is 115.7% higher than the industry average of 17.54%. Also, the stock’s trailing-12-month levered FCF margin of 5.04% is 22.8% higher than the industry average of 4.11%.
In terms of forward non-GAAP P/E, FSM is trading at 16.36x, 4% lower than the industry average of 17.04x. Likewise, the stock’s forward EV/EBITDA and Price/Cash Flow multiples of 4.20 and 3.93 are 50.7% and 53% higher than the respective industry averages of 8.52 and 8.35.
Over the past three years, FSM’s revenue and EBITDA increased at CAGRs of 44.8% and 44.6%, respectively. Moreover, the company’s total assets rose at a CAGR of 27.5% over the same timeframe.
Furthermore, the company’s total assets and levered cash flow improved at CAGRs of 6% and 14.7% over the same period, respectively.
For the third quarter that ended September 30, 2023, FSM’s sales increased 45.9% year-over-year to $243.10 million. Its operating income rose 696.5% from the year-ago value to $45.40 million. The company’s adjusted EBITDA grew 92.3% year-over-year to $104.60 million.
Furthermore, the company’s attributable net income and attributable earnings per share were $27.50 million and $0.09, compared to an attributable net loss and attributable loss per share of $3.70 million and $0.01, respectively. Its free cash flow came in at $70 million, up 106% year-over-year.
Analysts expect FSM’s revenue and EPS for the fiscal year (ended December 2023) to grow 21.1% and 52% year-over-year to $824.93 million and $0.23, respectively. Moreover, the company topped the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Shares of FSM have surged 13.4% over the past six months to close the last trading session at $3.73.
FSM’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
FSM has an A grade for Growth and a B for Sentiment. It is ranked first among 11 stocks within the Miners – Silver industry.
In addition to the POWR Ratings I’ve just highlighted, you can see FSM’s ratings for Value, Quality, Momentum, and Stability here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
PAAS shares fell $0.12 (-0.75%) in premarket trading Wednesday. Year-to-date, PAAS has declined -2.51%, versus a -0.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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