Silver is a contrarian asset on par with gold. Some investors flock to silver as a hedge, but does silver deserve a place in your portfolio?
Some people buy silver as a commodity. These investors store silver in a safe location and wait for its market price to rise.
Other investors prefer buying silver stocks. This version of metal investing gives you access to silver via a company.
Precious metals investors have several choices. Here are some things to consider before buying silver stocks.
1. Look at Previous Revenue Growth Before Buying Silver Stocks
Silver stocks don’t only give you access to precious metals. These stocks also give you access to companies.
The company’s performance will impact your returns as much as silver’s price changes. While these stocks are sensitive to silver price changes, look at revenue growth too.
Revenue growth indicates if a company is gaining market share over competitors. Reliable revenue growth indicates a strong company.
2. Check Earnings Too
Revenue growth reflects a company’s ability to gain market share. Earnings reveal if revenue growth is sustainable.
Some companies plug all of their earnings into revenue growth. They reinvest profits and end up with a net loss.
Be wary of silver stocks with strong revenue growth and expanding net losses. Some quarters can produce outliers, but trends are concerning.
Make sure the company maintains a respectable and consistent profit margin as it expands.
3. Is Your Portfolio Protected From a Down Turn?
Silver acts as a hedge against market turmoil. When the Fed raises rates and other chaos ensues, equities often decline.
Silver thrives during these market conditions. The asset’s limited supply and intrinsic value make it appealing.
You can use a starter pack or silver ETF to build your silver position. These investments will offer some protection during corrections.
Failing to hedge can leave your portfolio exposed. You may avoid significant downside by adding silver to your portfolio.
4. Review the Valuation
Investors use various metrics to determine a stock’s fair value. The P/E ratio and P/S ratio remain two popular metrics.
The metrics alone don’t do any good if you use them alone. Using these metrics under the context of revenue and earnings trends presents a better picture.
Compare a silver stock’s value with a silver ETF. The iShares Silver Trust ETF has a P/E ratio under three. This ratio can change at any time, but it gives us a gauge.
It wouldn’t make sense to buy silver stocks with P/E ratios above three unless they delivered above-average growth rates. Understanding an asset’s fair value helps you avoid overpaying.
5. Portfolio Diversification
Diverse portfolios minimize your risk across assets. Some investors put most of their money into growth stocks. These growth stocks can lead to life-changing returns, but they suffer from volatility.
You should consider buying silver stocks if you don’t have any in your portfolio. Silver assets can pick up the slack for underperforming stocks. If silver declines, your other stocks can make up the difference.
You shouldn’t over-invest into any asset, but you should have many assets in your portfolio.
Build Up Your Silver Position
Buying silver stocks offers extra protection from market volatility. Silver’s many uses and limited nature will make it a hot commodity for many years to come.
Want to learn more about investing? Continue reading our blog for additional resources and insights.
Read more: Surprising Ways to Buy Silver Online