Silver prices witnessed a decent surge this year and are expected to soar further. Silver’s industrial demand is expected to achieve a new high this year. However, economic and geopolitical factors continue to pose challenges for companies in the silver industry. So, avoiding fundamentally weak stocks Pan American Silver Corp. (PAAS), MAG Silver Corp. (MAG), and Dolly Varden Silver Corporation (DOLLF) could be wise now.
Over the past six months, precious metals, including silver, outperformed on Wall Street while maintaining an upward trend toward all-time highs, driven by the weakened U.S. dollar, recent banking crises, and economic uncertainty. Silver averaged $21.71 in 2022, began 2023 at $24, and has since been on an uptrend.
According to the latest Coin Price Forecast, the silver price will reach $30 by the end of this year and $40 by the end of 2024.
Furthermore, the Silver Institute forecasts that after hitting record highs in 2021 and 2022, silver industrial demand is expected to grow 2.6% year-over-year to 550 million ounces (Moz) this year as ongoing vehicle electrification and governments’ expanding commitment to green infrastructure will drive demand. In addition, the lifting of COVID-19 restrictions in China supports sentiment toward industrial metals, extending to silver.
On the contrary, jewelry demand is projected to decline by 10% this year, while silver’s physical investment is expected to drop by 16% year-over-year from last year’s record-high of 352 Moz.
Despite rising silver prices and strong demand, the industry players face economic and geopolitical headwinds, including the Fed’s aggressive interest rate hikes and escalating production costs amid inflationary pressures, supply chain shortages, and delays.
Against the backdrop, investors should avoid struggling silver stocks PAAS, MAG, and DOLLF.
Let’s take a closer look at the fundamentals of these stocks:
Pan American Silver Corp. (PAAS)
Headquartered in Vancouver, Canada, PAAS engages in the exploration, mine development, extraction, processing, refining, and reclamation of silver, gold, zinc, lead, and copper mines in Canada, Mexico, Peru, Argentina, and Bolivia. The company holds interests in the La Colorada, Huaron, Shahuindo, La Arena, bell Creek, San Vicente, Joaquin, and Cap-Oeste Sur Este mines.
PAAS’ trailing 12-month gross profit margin of 21.36% is 26.5% lower than the industry average of 29.05%. Likewise, its trailing 12-month EBIT and net income margin of negative 11.07% and 22.86% compare to the respective industry averages of 12.60% and 7.69%.
For the fourth quarter that ended December 31, 2022, PAAS’ revenue reduced by 11.1% year-over-year to $375. 47 million. The decline in revenue was from a build-up of finished goods inventory due to the sales timings at the end of December. Also, the build-up of finished goods inventories of zinc contributed to higher costs due to reduced by-product credits.
The company’s mine operating earnings were $35.05 million, down 53.9% year-over-year. Its adjusted loss and adjusted loss per share came in at $4.80 million and $0.02, compared to adjusted earnings and adjusted EPS of $39.94 million and $0.19, respectively. Net cash outflows from operating activities during the fourth quarter were $112.10 million.
The consensus revenue estimate of $357.33 million for the first quarter (ended March 31, 2023) indicates an 18.8% decline year-over-year. The company’s EPS is expected to decrease 60% year-over-year to $0.06. Also, the company has missed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, shares of PAAS have declined 36.9% to close the last trading session at $18.73.
PAAS’ POWR Ratings reflect this bleak outlook. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a D grade for Sentiment, Growth, Value, Momentum, and Stability. It is ranked #9 out of 11 stocks in the F-rated Miners-Silver industry. Click here to see additional ratings of PAAS (Quality).
MAG Silver Corp. (MAG)
MAG explores and develops precious metal mining properties. The company explores for silver, gold, lead, copper, and zinc deposits. It holds approximately 44% interest in the Juanicipio project located in the Fresnillo District, Zacatecas State, Mexico. MAG is headquartered in Vancouver, Canada.
On February 16, MAG closed a $17,333 bought deal private placement and issued 969,450 common shares on a “flow-through basis,” including 126,450 Flow-Through shares issued upon the full exercise of a 15% over-allotment option at a price of $17.67 per share.
Additionally, the company closed a $42,558 bought deal public offering on February 7 and issued 2,905,000 common shares, including 170,000 common shares issued upon the partial exercise of the over-allotment option, at a price of $14.65 per share. Dilution might occur when new shares are offered to the public, lowering the stock’s EPS ratio and reducing each share’s intrinsic value.
MAG’s trailing 12-month ROCE and ROTA of 4.59% and 4.33% are 60.5% and 18.9% lower than the industry average of 11.61% and 5.34%, respectively. Also, the stock’s trailing 12-month ROTC of negative 3.73% compares to the 6.89% industry average.
For the fourth quarter ended December 31, 2022, MAG reported a net loss of $825 or $0.01 per share, compared to a net income of $8.66 million and $0.09 per share for the same quarter in 2021. For the full-year 2022, the company’s cash outflows from operating and investing activities were $8.72 million and $18.90 million, respectively.
In addition, as of December 31, 2022, the company’s cash stood at $30 million, compared to $56.75 million as of December 31, 2021. Also, its current liabilities were $2.66 million, compared to $1.61 million as of December 31, 2021.
The stock has declined 23.3% over the past year to close the last trading session at $13.83.
MAG’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, translating to a Sell in our proprietary rating system.
MAG has an F grade for Quality. Also, the stock has a grade of D for Momentum, Sentiment, and Value. It is ranked #8 of 11 stocks in the F-rated Miners-Silver industry.
To see MAG’s POWR Ratings for Growth and Stability, click here.
Dolly Varden Silver Corporation (DOLLF)
DOLLF is a Canadian company that acquires, explores, and develops mineral properties in Canada. It explores for gold, silver, lead, zinc, and copper deposits. The company holds 100% interests in the Kitsault Valley project, which comprises the Dolly Varden property and the Homestake Ridge property located in the Golden Triangle of British Columbia, Canada.
DOLLF’s trailing 12-month ROCE, ROTC, and ROTA of negative 33.23%, 23.50%, and 19.22% compare to the industry averages of 11.61%, 6.89%, and 5.34%, respectively. And its trailing 12-month cash from operations of negative $14.52 million compares to the $385.60 million industry average.
DOLLF’s operating loss widened 135.7% year-over-year to C$21.92 million ($16.40 million) for the year that ended December 31, 2022. Its loss and comprehensive loss for the year worsened by 134.9% from the previous year to C$19.27 million ($14.42 million). The company’s loss per common share widened by 50% year-over-year to C$0.09.
Also, as of December 31, 2022, the company’s current liabilities came in at C$4.10 million ($3.07 million), compared to $343,673 ($257,139) as of December 31, 2021.
Shares of DOLLF have gained 32.6% over the past three months to close the last trading session at $0.87.
DOLLF’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system.
DOLLF has an F grade for Value and Quality and a D for Quality. It is ranked #10 out of 11 stocks within the same industry. Click here to access the other ratings of DOLLF for Growth, Stability, and Sentiment.
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PAAS shares were trading at $17.98 per share on Monday afternoon, down $0.75 (-4.00%). Year-to-date, PAAS has gained 11.34%, versus a 8.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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