Buy This Pure-Play Silver Producer For 43% Upside

Different market sectors carry different risks. In the precious metals sector, and for mining companies in particular, there are geopolitical risks not normally associated with investments closer to home.

If you purchase shares of Bed Bath & Beyond (Nasdaq: BBBY), you don't need to worry about guerrilla fighters coming in and stealing your stores at gunpoint.

But in the mining sector, this threat is real. I'm referring to is known as nationalization or expropriation.  

Nationalization occurs when a government takes assets held by individuals or private companies and converts them into public or government property. Sometimes compensation is offered. Often it is not.

When Fidel Castro came to power in Cuba in 1959, he gradually nationalized all foreign-owned private companies. After a great deal of protest from former owners, the Cuban government eventually paid out $1.3 million to U.S. interests. It was a paltry sum, barely a fraction of what had been taken.

When Salvador Allende became president of Chile in 1970, his government finalized the nationalization of Chile's copper mining industry. The practice continued when Augusto Pinochet came to power in 1973. Chile's mining industry remains largely under state control.

For investors in precious metals, the threat of nationalization is a real concern. In StreetAuthority's latest special report, "The 11 Most Shocking Investment Predictions of 2014," you will learn why the silver industry in one South American country is under siege. You'll also learn what company our expert commodity analysts think is in the best position to profit if nationalization occurs.

Not all mining companies face this threat. The one I'd like to talk about today bases all of its operations a little closer to home -- in Mexico.

While Mexico has certainly experienced more than its share of drug violence over the past decade, its overall economy has enjoyed enormous growth. The Mexican government hasn't meddled with private companies since 1982, when the banking system briefly fell under state control due to a debt crisis. The country's rich mining resources have been left alone, and I see no cause for concern in the immediate future.

First Majestic Silver (NYSE: AG) operates five producing mines and owns six more in various stages of exploration and development.       

	© First Majestic Silver
	First Majestic's La Guitarra mine has contributed to the company's growing production.

The company is a pure-play silver producer experiencing strong growth in production. Production in 2013 is estimated to clock in at 11.3 million to 11.7 million ounces. However, the company estimates that it will produce 16 million ounces by end of 2014, which would be a one-year growth rate of 42%.

The company is planning to ramp up production at several mines in the near future. Of course, growth doesn't come for free. The company has consistently issued new shares to raise capital, and the share count has slowly grown from 99 million outstanding shares in 2010 to 117 million today.

As a pure silver producer, First Majestic's revenues are closely tied to the price of silver. Although silver is notoriously volatile, its price hasn't been this low since October 2010.

The current low prices for silver allow for a lot of upside. Should silver prices realize even a modest increase to around $27, and if First Majestic is able to meet production estimates for 2014, share prices could gain up to 43% over the next 12 months.

Risks to Consider: First Majestic does not pay a dividend and is therefore more suitable for speculative growth investors. The company has been slowly increasing the number of outstanding shares in order to fund new projects.  Increased share counts dilute the value of existing shares. In addition, silver prices are notoriously volatile.

Action to Take --> I wouldn't bet the farm (or my kid's college fund) on this stock. But for speculative investors who can stomach volatility, First Majestic's stunning growth rate, combined with the potential upside in silver prices, make the stock an attractive buy at today's prices.

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