2 Silver Mining Stocks For A Shinier Portfolio: PAAS & HL

Precious metals have hogged the limelight this year, with gold and silver being the major movers. In fact the precious white metal has clearly outshone the bullion, clocking a 35% gain so far compared to gold’s 23% rise.

Worries over the global economy, Brexit-induced equity market volatility, the U.S. Federal Reserve’s move to maintain steady interest rates so far and the introduction of negative interest rates by several central banks boosted growth of these safe-haven assets. Despite the recent prospects of a likely rate hike by the Fed in Dec 2016, silver has remained close to its highs.

Demand Prospects Strong

Silver has varied industrial applications which drive its demand significantly. Industrial demand for silver is set to increase from 54% last year. Solar power is replacing conventional power sources and 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% and coin demand will likely be robust this year. Increased interest in safe haven assets will also 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 Likely to Trickle Down

Global mine supply production is projected to fall 5% in 2016 – the first drop in global silver mine production since 2002. The soft price environment in the prior years had deterred producers to invest in expanding capacity at existing operations. Moreover, silver scrap supply, which has been on the decline for several years, should further weaken in 2016. Going forward, global silver mine production is expected to slump through 2019 as primary silver production from more mature operations starts to meander.

Thus, we are looking at a potential silver deficit, which in turn provides a solid ground for silver price gains this year. Price appreciation will also be supported by a flight to safety amid volatile equity markets.

Industry Outlook Favorable

We rank over 250 industries in the 16 Zacks sectors based on the earnings outlook for the constituent companies in each industry. The way to align the ranking and outlook from the complete list of Zacks Industry Rank is that the outlook for the top one-third of the list (Zacks Industry Rank of #86 and lower) is positive, the middle one-third (between #87 and #172) is neutral while the outlook for the bottom one-third (Rank #173 and higher) is negative. Currently, the silver mining industry is in the top tier with a Zacks Industry Rank of #11, indicating a positive outlook.

The uptrend in silver prices has ignited a massive rally in silver mining stocks this year, most of which have gained in triple digits. Among others, Athena Silver Corp AHNR and First Majestic Silver Corp. (NYSE:AG) , were major movers year to date, gaining 354% and 307%, respectively.

We thus believe investing in silver stocks now would be a prudent move, given the tailwinds driving the precious metal. Below we present the current best bets in the sector. These silver stocks seem to be on the right curve to yield better returns and reward their shareholders.

Pan American Silver Corp. (NASDAQ:PAAS)

Pan American Silver, along with its subsidiaries, operates and develops, and explores silver. Pan American Silver sports a Zacks Rank #1. The stock has outperformed the S&P 500 by 161.84% year to date. The company has an expected long term earnings growth rate of 4% and an average positive earnings surprise of 54.04% over the trailing four quarters.

The Zacks Consensus Estimate for the third quarter is pegged at 8 cents, an improvement from the loss per share of 6 cents in the prior year quarter. For 2016, the Zacks Consensus Estimate is 30 cents, an improvement from the loss of 38 cents per share in the prior year. Estimates for both the third quarter and 2016 have moved north over the past 60 days.

Pan American is on track to achieve its production forecasts for 2016, and has reaffirmed its targets for silver of between 24 million and 25 million ounces. Pan American reduced its annual 2016 cash costs guidance by 30% to a range between $6.50 and $7.50 per ounce.

Hecla Mining Co. (NYSE:HL)

Hecla Mining is a leading low-cost U.S. silver producer with operating mines in Alaska and Idaho. Hecla Mining sports a Zacks Rank #1 (Strong Buy). The stock has outperformed the S&P 500 by 186.73% year to date. The company has an expected long term earnings growth rate of 1%. Last quarter, the company delivered a positive earnings surprise of 250% and has an average positive earnings surprise of 131.25% over the trailing four quarters.

The Zacks Consensus Estimate for the next quarter is currently pegged at 4 cents, reflecting a 186.67% year over year climb. For 2016, the Zacks Consensus Estimate is pegged at 17 cents per share, an improvement from the loss of 9 cents per share in the prior year. Estimates for both the third quarter and year have moved north over the past 60 days.

With higher trending prices and continued strong performance from Casa Berardi and San Sebastian mines, the company is poised well for the future. The company increased its estimated 2016 silver production to 15.75 million ounces from 15 million at a cash cost of $4.75 per ounce.

Now See Our Private Investment Ideas

While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>