The consensus of market experts with regards to silver in 2011 goes something like this: silver prices are generally expected to stay hot in 2011 - though not without troughs - after dramatically outpacing gold prices in 2010.
According to Jefferies analyst Michael Dudas, silver prices should "achieve higher highs and greater lows in the next 12 to 18 months" driven by monetary, supply-demand and technical drivers. The prediction comes as BullionVault announces that its online gold and silver trading business grew nearly 29 per cent by volume to $1.33-billion (U.S.) in 2010, while customer numbers increased to 21,000 given the increased appetite for safe-haven and alternative investments.
In light of this, TheStreet sat down with numerous silver stock analysts and market watchers to arrive at six stocks the experts say they would buy during the expected silver price dips - in hopes of later benefiting from anticipated silver-price spikes in 2011.
Silver Wheaton is considered to be one of the most stable silver stocks due to its unique and stable business model.
"They don't have the risks of excavating and not finding anything," said Yu Dee Chang, Principal at ACE Investments. "Their costs are fixed. That's why their profit margin is also fixed. I like this as a more stable play."
Silver Wheaton's core approach lies in buying already-excavated ores from miners, then extracting silver from it. The company's portfolio includes silver streams from Goldcorp's Peñasquito mine in Mexico and Barrick's Pascua-Lama project spanning the border of Chile and Argentina.
The company says it currently has 15 silver purchase agreements and two precious metals agreements where it has the right to purchase all or a portion of the silver production at a low fixed cost from high-quality mines located in politically stable regions. Silver Wheaton estimates that it will have exposure to 40 million silver equivalent ounces of annual production by 2013, from about 23.5 million silver equivalent ounces in 2010.
David Christie of Scotia Capital has a sector outperform rating and one-year, $40 price target for the stock. "Silver Wheaton performed better than any other silver investment including the metal itself year-to-date," he told investors in late 2010, noting that few silver stocks have outperformed the metal. Christie praises the company for being the best-leveraged and safest operational growth story of the precious metals companies he covers.
Pan American Silver could gather upside momentum and outperform silver moving forward, according to numerous analysts, as management of this leading global silver producer reassures investors about its ability to conduct open pit mining in one of world's largest untapped silver deposits in the world.
This deposit, the Navidad project in Chubut, Argentina, that Pan American owns, is estimated to contain at least 632 million ounces of silver. "They've had some questions about production growth and it looks like there should be some resolution on that relating to the property in Argentina," observes TEAMX manager James Dailey.
Overall, Dailey is impressed by Pan American, particularly its "extremely" effective management team from both a profitability and cost standpoint, and its strong operating performance in 2010.
Dailey believes there's significant upside potential left for the stock; although it shot up more than 70 per cent in 2010, Pan American Silver still lagged behind the metal and peers due to uncertainty over whether the company could continue to grow its operations. As the company appears closer to a resolving the issue, analysts are growing more confident about the stock's ability to begin outperforming silver. Dailey says he's expecting short-term correction in silver owing to better-than-expected economic news and a stronger dollar, and that this correction could make way for a good buying opportunity in stocks such as Pan American, which are highly leveraged to the price of the commodity.
Jefferies analyst Michael Dudas has a "hold" rating on Pan American Silver, praising the company for its 14 straight years of silver production growth owing to strong management. Possible risks for the company include lower-than-expected gold and silver prices, regulatory and political issues surrounding its global operations and slower production ramp-up, he writes in an investor note. Overall, Dudas predicts a premium multiple for the company going forward.
Although its name does little to denote this, Goldcorp is a well-positioned silver play for 2011, according to the analysts we surveyed.
"The name is one that people tend to think of it as gold, but it's in the top 20 of silver producers globally with about 13 million ounces a year ," says Peter Sorrentino of Huntington Funds.
Morningstar analyst Min Tang-Varner recently raised her fair value estimate for Goldcorp by $12 a share to $48 after the company reported a 28 per cent rise in revenue for the third quarter ended Sept. 30 compared with the year before.
This, despite 4 per cent decline gold production, as revenue received a boost from $1,239/oz realized gold prices and $19.15/oz silver prices.