Silver is a highly valued precious metal, and it is always a pleasure to get it as a gift. There are many occasions during the year in which it is popular to give silver jewelry, including weddings, Mother's Day, birthdays, Christmas, Valentine’s Day, etc. Because of its much more affordable price compared to gold, the grey metal also tends to rise in popularity when economic conditions are tough, as they have been around the world this past year.
Silver is also used in various manufacturing processes to produce industrial machinery, household appliances and various electrical equipment as well as electronic components of computers, mobile phones, tablets and several other devices. Furthermore, thanks to its specific properties as an excellent conductor of electricity and heat, the metal is applied to produce solar panels and long-lasting, resilient power storage systems and batteries for electric vehicles. Silver demand is expected to benefit from the ongoing electrification of many industrial sectors as well as the increasing adoption of renewable energy technologies to meet climate goals.
In financial markets, silver is seen as a safe haven asset since it allows investors to protect the value of their portfolio from the negative effects of inflation or volatility. The Fed has been maintaining its easy monetary policies despite the economy bouncing back strongly from the Covid-19-related recession, resulting in high inflation. The annual inflation rate reached 5.4% in June, greatly exceeding the typical target of 2%. The Fed believes this inflation is transitory. However, inflation is still expected to remain high for many quarters ahead.
High inflation is not the only threat to investors. Because the stock market is so overvalued, there is a high chance that elevated volatility could hit markets at some point in the near future, either due to an unexpected event or due to a sudden sharp increase in inflation forcing the Fed to raise interest rates sooner than expected.
Due to the above catalysts, analysts project that the price of silver will rise more than 30% to $32.72 per ounce within a year. The price per ounce negotiated through silver futures with expirations in September 2021 was trading at $25.13 as of the writing of this article.
Thus, I believe now is the perfect time to invest in silver. This can be done by purchasing the physical metal or silver futures, but another way to invest in silver is through the stocks of publicly-listed silver miners.
Hecla Mining Co (HL, Financial) represents an interesting opportunity among silver miners, as shares appear to be undervalued and are thus well positioned to take advantage of the expected rise in the price of silver. Year-to-date, the stock is down 6.61%. Shares were trading at $6.30 apiece on Aug. 6 for a market capitalization of $3.40 billion.
The price-book ratio is 2 versus the industry median of 2.41 and the enterprise value to Ebitda ratio is 15.93 versus the industry median of 10.32. The 50-day moving average is $7.08, while the 200-day moving average is $6.86. The stock holds an overweight recommendation rating with an average target price of $8.35 per share on Wall Street.
Based in Coeur d'Alene, Idaho, Hecla Mining Co mines 40% of all the silver produced in the U.S. It should deliver strong free cash flow over the second half of 2021 as operating activities are expected to yield more ounces at a lower cost. From its deposits in Alaska, Idaho and Quebec, the company targets to mine an output of 41.7 million to 43.3 million ounces of silver equivalent this year, up more than 25% from 2020, at an all-in sustain cost of no more than $11.50 per ounce of metal produced, after by-product credits. The all-in sustain cost will be approximately 10 to 12% lower than last year.
Thanks to a positive second quarter, the free cash flow reached almost $55 million, enabling the company to strengthen the balance sheet, which has now more money to support several exploration activities and pre-development projects that Hecla holds in North America.
Disclosure: I have no positions in any security mentioned.
