Credit: Shutterstock photoSilver is on a raging bull run this year having gained 26% so far, even outshining gold's 21% gain. The precious white metal is currently reigning at an 11-month high of $17.427 an ounce.
A soft USD and weak stock markets have driven its prices up. The U.S GDP rose a meager 0.5% in the first quarter, the slowest pace in two years. Further, weaker-than-expected April jobs report adds to the woes. Also, weak data coming from the world's second biggest economy, China, also continues to stoke concerns.
Given the state of affairs, the Fed has slowed down the projected pace of subsequent rate increases since its December lift-off. This uncertainty has also led to the surge in silver prices . Apart from macroeconomic factors, let's have a look at the basic supply and demand fundamentals that influence prices.
Demand Looks Promising
Silver has varied industrial applications and thus is driven by industrial demand. Industrial demand for silver is set to increase from the 54% of total demand last year. The booming solar industry might even account for more than 13% of total industrial demand for silver in 2016. The demand from ethylene oxide producers is expected to jump more than 25% year over year.
Demand in jewelry fabrication is expected to increase by 5% in 2016 and coin demand will be robust in 2016. Increased interest in safe-haven assets will drive physical silver investment demand. India will emerge as a major consumer driven by increased investor interest and growth in jewelry, decorative items and silverware fabrication.
Supply at Stake
Global mine supply production is projected to fall 5% in 2016 - the first drop in global silver mine production since 2002. A dearth of new mines and drop in output from existing mines are expected to take a toll on supply. Moreover, silver scrap supply, which has been on the decline for several years, should further weaken in 2016.
This contraction in supply will inevitably lead to a silver deficit thus providing a solid ground for silver price gains this year. Price appreciation will also be supported by a flight to safety amid geopolitical tensions and volatile equity markets.
Performance in the First Quarter So far
As per the Zacks classification, the silver-mining industry comes under the broader Basic Materials sector. About 85% of the companies in the sector have reported their first-quarter results, with a 14.9% drop in earnings on the scoreboard. Taking into account all the companies that are yet to report, a 15.5% drop is projected for the quarter.
As per our Earnings Trends report, while earnings are expected to decline 13.3% in the second quarter, a dramatic recovery is projected for the latter half of the year with 6.1% growth in the third and 19% in the fourth.
The silver mining industry currently has a Zacks Industry Rank of 31 out of more than 250 industries, depicting a favourable position. As the curtains are set to fall on first-quarter earnings, it makes sense to make a dash for the silver miners that have the potential to beat earnings when they report next week. A beat backed by earnings growth and a positive outlook for the industry for the rest of the year would instil investor confidence in these stocks leading to immediate price appreciation.
How to Make a Choice?
With a number of players, one can narrow down the list with the combination of a favorable Zacks Rank - Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) - and a positive Earnings ESP , which is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. It helps in picking stocks that have high chances of delivering earnings surprises in their next earnings announcement. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Here are a couple of silver mining stocks that have this compelling combination and are set to surprise this earnings season.
Pan American Silver Corp. ( PAAS )
Headquartered in Vancouver, Pan American Silver, along with its subsidiaries, operates and develops, and explores silver. The company has seven operating mines in Mexico, Peru, Argentina and Bolivia, as well as a portfolio of exploration and development projects in the Americas.
This Zacks Rank #2 stock has delivered an impressive year-to-date return of 129.23%. The company with a market capitalization of $2.15 billion has a long-term expected earnings growth rate of 4%. The company has an Earnings ESP of +33.33%.
Pan American Silver is on track to produce between 24 million and 25 million ounces of silver this year. The company has effectively lowered its operating cash costs. Pan American Silver plans to invest $135 million to $140 million this year in La Colorada and Dolores expansion that will boost its production profile and lower costs significantly.
- Pan American Silver is expected to report first-quarter results before the opening bell on May 12.
Pretium Resources Inc. ( PVG )
Vancouver, Canada based Pretium Resources acquires, explores and develops precious metal resource properties in the Americas. Its mineral interests consist of gold, copper and silver exploration projects. The company has a market capitalization of $1.08 billion.
This Zacks Rank #2 stock has delivered a year-to-date return of 55.95%. The company has an Earnings ESP of +33.33%.
The company's high grade Brucejack Project remains on track for expected commissioning in the third quarter of 2017.
- Pretium Resources is expected to report first-quarter results on May 13.
Moving Forward
With prospects of surging demand and plummeting supply, the stage is set for rising silver prices. A sneak peek at the space for some possible winners backed by a solid Zacks Rank and a positive Zacks Earnings ESP could be a great idea for investors to gain from this earnings season. These silver stocks seem to be on the right curve to yield better returns and reward their shareholders.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
PAN AMER SILVER (PAAS): Free Stock Analysis Report
PRETIUM RES INC (PVG): Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
