Pan American Silver Investors Solidly in the Black
When it comes to investing in silver (or gold for that matter) many purists will go the way of purchasing the real thing in the form of secure physical silver rounds, bars, and coins. For some investors, this happens to be an excellent way to enhance your overall portfolio since you’re buying a hard asset.
However, physical precious metals are indeed materially heavy and require storage in a safe place like a safe or at the very least, a safety deposit box in a centralized, traditional bank.
However, there are those investors who prefer the much lighter “paper” silver, such as ETFs or index funds. According to a new finance article, when purchasing an index fund, educated investors are able to approximate the average market return. That said, lots of investors hope for much larger returns and therefore choose to build their portfolio on their own while engaging in their own market research.
One example of this can be found in the Pan American Silver Corp. or TSE:PAAS. Shareholders in this silver index are said to have seen the share price increase by nearly 100 percent in just over three years, or so claims Yahoo Finance. The return is goes beyond the 34 percent market return which does not include dividends.
But does the long-term performance of PAAS stand “in line with the underlying business’ progress?”
Comparing Earnings Per Share with Price
Says financial one expert, in the short term, “the market is a voting machine.” However, over the long term it’s more like a weighing machine. One way (which is said to be flawed) for assessing sentiment around a business, is to compare the share price with earning per share, or EPS.
With this in mind, Pan American Silver was able to increase its EPS by 90 percent over 36 months, which naturally made the price per share increase accordingly. This means that the average annual share price growth of 25 percent is lower than its EPS growth. In this manner, the market is said to have “moderated its expectations for growth.” But the overall market remains optimistic while it stares in the face of a profit/earnings (P/E) ratio just shy of 60 percent.
Analysts see significant purchases of PAAN over the course of 2021 into 2022 as a positive market move. However, future earnings are said to be way more pertinent to whether or not shareholders will make profits. You should always do your research prior to purchasing and/or selling a stock to examine the long term growth trends. In other words, zoom out.
Speaking About Dividends
When taking into account investment returns on a silver index fund, it’s of paramount importance to take a close look at the difference between share price return or SPR and total shareholder return or TSR. TSR is said to incorporate the value of discounted capital raisings or spin-offs, plus dividends, assuming that those dividends are then reinvested.
It just so happens that Pan American Silver’s TSR over the course of the last 26 months was around 103 percent. That number exceeds its SPR. This indicates that the dividends paid by PAAS have increased shareholder return.
On the Other Hand…
With the overall market having gained about 22 percent last year, Pan American Silver stockholders actually lost money. 7.6 percent to be precise, and this includes dividends. But then this statistic comes as no surprise since even rock solid stocks will inevitably drop at times. But experts say they are looking to see some “improvements in the fundamentals of a business” prior to going all in.
Again, you have to zoom out and set your sights on the long term. In the case of PAAS, over the course of five years, you would make a steady 9 percent. If fundamentals continue to indicate sustainable growth over the long term, the recent sell-off might be the perfect opportunity to buy in. But do you own research and make the decisions that match your personal financial goals.
But while you should consider the many different impacts the current market conditions combined with exorbitant inflation, soaring gas prices, and geopolitical unrest, the price of Pan American Silver, along with other precious metals (and cryptocurrencies for that matter), is liable to be volatile in the short term. With the fed announcing a $95 billion per-month balance sheet run-off beginning in May 2022, stock prices all over the board could plummet deep into bearish territory.
Why Purchasing Real Silver Might be a Better Alternative to Paper Silver
With overall market volatility surely coming down the pike, it’s not a bad idea to turn to commodities. Real silver, as opposed to indexes and ETFs are considered a commodity. Commodities usually move in the opposite direction from stocks and bonds.
During a poor market outlook, investors generally turn to tangible silver (and gold and Bitcoin). This is especially true during recession, which looks like it could be looming on the horizon. Political turmoil, and geopolitical problems like we’re witnessing right now, is also a signal for investors to reallocate funds to precious metals like gold and silver.
Also, investors need to keep in mind that hard assets like silver act as a hedge against inflation. It also holds its value better than paper silver. Again, investors need to do their research and determine what type of investing strategy works best for them.
But if you’re the type to play it safe, real silver will serve as a safe haven for your overall portfolio. But you also need to remember that silver is an “industrial metal” while also acting as an “investment metal,” both of which can affect its overall price and performance.