Get 40% Off
💰 Buffett reveals a $6.7B stake in Chubb. Copy the full portfolio for FREE with InvestingPro’s Stock Ideas toolCopy Portfolio

A FTSE Miner For Silver Bulls

Published 12/02/2021, 08:17

The price of silver has been trading at multi-year highs. It is approximately $27 an ounce at the time of writing. Market volatility over the past year initially catapulted gold, an asset regarded as a safe haven. Before long, silver also joined the race higher and put the limelight on both the commodity and silver miners.

Silver Weekly Chart.

Yet, recently, silver is getting even more attention than gold as the term short squeeze” has become the topic of conversation. Most of our readers will know that it refers to a situation where a short-seller has to close out the open position by buying back the underlying asset—such as a stock or an exchange-traded fund (ETF).

If the price of the underlying asset moves (rapidly) higher, the short-seller might be forced to close out the trade. In this case, buying back the asset exacerbates the move higher, leading to short-term erratic price volatility.

For instance, earlier in the year, both GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) reached significant highs in a matter of trading sessions with many analysts pinning this on the Reddit community and short squeezing. But these were not the only stocks to see a surge in price.

One of the next targets for a short squeeze became silver. As traders moved from AMC and GME to the shiny commodity, the price of silver initially jumped from $25 to just shy of $30, the highest it has been in nearly eight years.

Hochschild Mining Weekly Chart.

With the price of silver on the rise, stocks like Fresnillo (LON:FRES) (OTC:FNLPF) and Hochschild Mining (LON:HOCM) (OTC:HCHDF) began to rise as well. Both of these companies mine silver and gold.

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads .

We recently covered FTSE 100 member Fresnillo, one of the best performers on the UK's leading equity index in 2020. Over the past year FRES shares have returned about 57%. However, year-to-date (YTD), the stock is down about 8%.

Today, we’ll introduce FTSE 250 member Hochschild Mining to see whether the company deserves to be on investors’ radar.

Hochschild Mining

With corporate headquarters in London, HOCM has mining operations in Peru, Chile and Argentina. Hochschild has been in the metal industry for about a century. It went public in 2006.

In the past 12 months, HOCM stock returned about 45%. However, YTD, it is down around 1.7%. On Feb. 11, the stock closed at 221p ($3 for U.S.-based shares). Its dividend yield is about 1.3%.

Most of the group’s revenue comes from silver. But it also mines and sells some gold, too. According to the interim results released in August, revenue was $232 million. Profit before tax stood at $6.5 million. Cash and equivalents were $162.1 million. Management highlighted that the balance sheet remains robust.

Fresnillo Weekly Chart.

In November, as a result of COVID-19 infections, the miner had to temporarily stop operations at the San Jose mine in Argentina. According to a recent update, other mines are on track with operations.

HOCM stock’s forward P/E and P/S ratios stand at 13.23 and 2.32, respectively. We like the shares around these levels. But Hochschild is expected to release earnings on Feb. 17. We, therefore, wait to analyze the metrics before hitting the “buy” button.

3rd party Ad. Not an offer or recommendation by See disclosure here or remove ads .

Bottom Line

We believe there is more to the silver story than retail investors taking a sudden interest. Rising industrial demand and its importance as a store-of-value could mean the run-up in the price of silver has legs.

The tech sector has a large demand for silver in a majority of products, such as smartphones and computers. It is used in the medical industry, as well as in jet engines and solar panels. We expect “green-recovery” stimulus packages could provide further tailwinds for the metal. The other main demand for silver is in jewelry. Jewelry and investor buying make up 50% of the demand for all silver.

Short-squeeze may not necessarily be what sends silver to reach new highs. But the momentum seems to be with the commodity. Buy-and-hold investors could buy the dips either in the metal or silver miners. However, short-term traders should remember that both can be choppy.

Investors who are not ready to commit capital in a single mining stock might also consider buying an ETF. Examples include:

  • Aberdeen Standard Physical Silver Shares ETF (NYSE:SIVR) - up 3.0% YTD;
  • ETFMG Prime Junior Silver Miners ETF (NYSE:SILJ) - down 2.0% YTD;
  • Global X Silver Miners ETF (NYSE:SIL) - down 1.9% YTD;
  • Invesco DB Silver Fund (NYSE:DBS) - up 2.1% YTD:
  • iShares MSCI Global Silver and Metals Miners ETF (NYSE:SLVP) - down 2.7% YTD:
  • iShares Silver Trust (NYSE:SLV) - up 2.9% YTD.

Latest comments

good article. I'm locked and loaded into HOCHSCHILD.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.