Investing in Silver Stocks

Silver is a unique precious metal. It’s essential for many industrial applications. Silver is the best electrical and thermal conductor of all metals, making it highly valued for electrical applications. Because of that, more than half of silver’s demand comes from the industrial sector.

Silver is also highly valued by investors because it shares many of the same investment characteristics as gold. A safe-haven metal, silver can help investors hedge against inflation and weather an economic downturn. It can also help provide investors with more portfolio diversification.

Here’s a look at how to invest in silver without having to buy the physical precious metal.

Image source: Getty Images.

Top silver stocks

Many companies in the metals sector mine silver. However, most mining companies focus on producing industrial metals such as iron ore, copper, and aluminum. They often produce silver as a byproduct. Meanwhile, companies that mine precious metals tend to focus on gold. Consequently, even though many companies mine some silver, it often generates a relatively minor portion of their revenues.

Although these factors limit the available silver investment options, a few top silver stocks stand out:

Source: Company websites.
Company Description
First Majestic Silver (NYSE:AG) A precious metals mining company that gets the majority of its revenue from silver.
iShares Silver Trust (NYSEMKT:SLV) An exchange-traded fund (ETF) that tracks the price of silver.
Pan American Silver (NASDAQ:PAAS) A mining company with significant silver reserves.
Wheaton Precious Metals (NYSE:WPM) A precious metals streaming company with significant silver exposure.

1. First Majestic Silver

First Majestic gets about half its revenue from silver and half from gold, making the mining company one of the purest plays on silver in the mining sector.

Although it’s a Canadian company, First Majestic focuses on Mexico because it produces more silver than any country in the world. The company currently operates three mines in Mexico and has several other silver mines under development.

First Majestic also operates the Jerritt Canyon Gold Mine in Nevada. It purchased the mine in 2021 to diversify its operations. However, even after adding a primary gold mine, First Majestic has more exposure to silver than any of its peers.

First Majestic’s focus on producing silver positions it to outperform the precious metal’s price. It can increase its production while reducing costs, which should increase profits faster than silver prices. However, its business model also makes it vulnerable to operational problems and cost overruns. Mining issues, management missteps, and exposure to other commodities can weigh on the performance of a silver mining company’s stock.

First Majestic believes it can be a long-term outperformer. It aims to become the world’s largest primary silver producer, and it’s investing millions of dollars each year toward the goal of finding and developing new silver mines.

2. Pan American Silver

Pan American Silver is a mining company with diversified operations. In 2021, the company got 60% of its revenue from gold, 26% from silver, 8% from zinc, 4% from copper, and 2% from lead. It operates eight mines across the Western Hemisphere, including in Peru, Mexico, Canada, Argentina, and Bolivia.

While gold is its primary revenue driver, Pan American Silver has significant silver resources. In 2022, 49% of its mineral reserves were silver, compared to 27% gold, 15% zinc, 6% lead, and 3% copper. The company has three large development and late-stage exploration projects that could meaningfully expand its silver production in the future.

Pan American Silver also stands out for its rock-solid balance sheet. The company had more cash than debt in 2022. Its business also generates free cash flow, enabling it to fund expansions while returning cash to investors via dividends and share repurchases.

That combination of financial strength and long-term upside to silver makes Pan American Silver a potentially compelling option for investors.

3. Wheaton Precious Metals

Wheaton Precious Metals is a precious metals streaming company. Instead of operating physical mines, Wheaton provides mining companies with cash to cover portions of their mine development costs. In exchange, the company receives rights to buy some of the metal produced by the mines at fixed prices.

The company got 48.5% of its revenue from sliver streams in 2021, 47.5% from gold, and the rest from cobalt. Looking forward, Wheaton expects its silver streams to account for about 40% of its production mix between 2022 and 2031. The company’s exposure to silver is the highest among its streaming and royalty competitors.

Wheaton has the contractual right through 2026 to purchase silver for an average price of $5.25 per ounce. Any silver price above that level generates profit for the company.

The company’s focus on streaming enables it to generate lots of cash. Wheaton uses the money to invest in new streams and pay dividends to shareholders. Wheaton’s business model enables it to profit from rising silver prices in the same way as a mining company. However, it assumes fewer of the risks and potential cost overruns associated with physical mining.

Related metals sector topics

4. iShares Silver Trust

The iShares Silver Trust is an exchange-traded fund (ETF) that focuses on physical silver. The ETF aims to track the performance of the price of silver by owning silver bars stored in bank vaults in London and New York City.

Because the ETF holds physical silver, it tracks the precious metal’s price relatively closely. The chart below demonstrates how the price of iShares Silver Trust shares have changed with the price of silver:

Image source: YCharts.

The ETF has largely matched the price of silver over the long term. Investors get this solid performance for a reasonable cost since the fund’s annual expense ratio is 0.5%, which is a good ETF expense ratio overall. It’s a small price to pay to invest in silver without having to own the precious metal or face the operational risks of silver mining stocks.

Is investing in silver stocks right for you?

The price of silver can be volatile. Silver prices soared in 2020 as the pandemic caused macroeconomic concerns, leading investors to flock to the safe-haven metal. However, it has given back some of those gains as investors turned their attention elsewhere. Silver prices will likely continue to ebb and flow as economic, inflationary, and geopolitical fears rise and subside. Those catalysts affected the price of precious metals, mining stock prices, silver and gold ETFs, and cryptocurrencies.

However, silver’s inflation-protection investment properties are only part of the story. As previously mentioned, silver is an important industrial metal. In particular, it’s essential for clean energy. The fast-growing solar energy and electric vehicle (EV) industries are two notable industrial demand drivers.

Because of that, demand for silver should grow in the coming years, which could continue pushing its price higher. That makes silver a potential way to play the growth in clean energy.

Most investors choose to own silver stocks over the physical metal such as coins and bars. When the demand for silver is rising, silver companies can often pursue growth opportunities enabling them to expand their profits faster than silver prices rise. That should allow them to outperform the precious metal. Not owning the physical metal also enables investors to avoid the hassles and risks of acquiring, storing, and insuring a physical asset.

As a unique precious metal with industrial, consumer, and investor demand, silver is playing an increasingly important role in the economy. As a result, silver mining stocks and silver-focused ETFs could be attractive additions to many portfolios.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.