Picking good silver stocks can be a tough job, since there is often a lot of hype surrounding them; brokerage firms will market them as a safe haven from the coming doom that is always just around the corner. Silver mining stocks are a better investment that silver coins and bullion, since stocks typically earn income while coins just sit there waiting and hoping for the price of silver to go up.
Good silver stocks are going to be good stocks; standard fundamental analysis applies to silver stocks as much as with other stocks. Consistent profitability, low debt ratios, a low beta and a low price-to-earnings ratio are good starting points for screening for any good counter-cyclical stocks that will do well when the market takes it in the neck.
There are other silver-specific factors to consider. Low cost-per-ounce of production is key for a company to be able to survive downturns in the silver market.
Given the tendency for fraud and optimistic thinking in the precious metals industry, investors should be leery of claims of a big mother-lode just on the verge of going on-line. If you are buying silver stocks with the idea of it being a hedge against the financial system going to Hell in a hand-basket, you’re probably not in the mood for tacking on a side-bet on whether a particular mine is going to meet its specs. Thus, mines with a proven track record are going to be much better counter-cyclical stocks.
Political risk is a major factor in metals mining; a good vein of easy-to-mine ore isn’t worth much if the local government decides to nationalize the mine and take the silver for itself. Thus, mines in countries with governments that respect property rights are going to be worth more than mines in more volatile countries. Note that the country the company is headquartered in is often different than where the mines are, so that an Australian company with a flagship mine in Chile should be looking at the Chilean political climate.
Finally, labor relations needs to be taken into account. Companies with poor labor relations can be prone to strike and mine-worker unions tend to be among the most militant given the dangerous nature of the work. A company with a history of strikes against it would be a higher-risk company.
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