Will These Mining Stocks Bounce Back?
May 14th 2012 1:44PM
Updated May 14th 2012 4:14PM
However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.
There are 197 stocks listed under "metals & mining" in the CAPS' screener, of which only a few dozen carry well-respected four- and five-star ratings. Those accolades mean our 180,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the ones below:
CAPS Rating (out of 5)
52-Week Price Change
Estimated 5-Year Growth Rate
|Alpha Natural Resources (NYS: ANR)||****||$13.16||(73%)||10%|
|Southern Copper (NYS: SCCO)||****||$30.70||(9%)||11%|
Source: Motley Fool CAPS.
International and financial worries still grip the market, but with the S&P 500 flat over the last 12 months, it may not be surprising to learn that CAPS metals and mining stocks have tumbled more than 22% in that same time span. So let's take a closer look at why investors think these two companies that fell short of the market won't be jumping from the frying pan into the fire.
How clean is clean?
Sometimes it seems that those who believe we can fight wars without enduring any casualties are the same ones who think we can provide for our country's energy needs by only using "clean" forms of energy. But battles are bloody and sometimes the most abundant forms of energy don't fit the definition of being green, yet could go a long way toward meeting our needs. Coal is a prime example, and the results of the war being waged on the industry are reflected in Alpha Natural Resources' stock price.
As a candidate, President Obama promised to bankrupt with fees any company that built a coal-fired plant, and now the EPA is using its regulatory powers to implement those policies. One example is its Utility Maximum Achievable Control Technology rule that requires coal-fired utilities to install technology to reduce emissions that is prohibitively expensive and in some cases not even commercially available yet. Certainly record-low prices for natural gas are helping convince utilities to switch from coal to gas, but the National Mining Association says that within weeks of the rule's announcement the number of electric utility retirements exceeds even the EPA's estimates of the impact.
Alpha's dismal earnings report this month reflected the new, dour outlook. It cut its full-year forecast for coal shipments as met coal shipments -- the type used by utilities and steelmakers -- was much lower than expected. James River Coal (NAS: JRCC) suspended its capex guidance because of plummeting demand, and Arch Coal (NYS: ACI) is scaling back production and cutting its dividend.
Yet coal is the most abundant source of energy the U.S. has that could help minimize our reliance on foreign sources of fossil fuels. Waging war on the industry will ensure there will be plenty of casualties in the fight.
I agree with CAPS member chicagoadvisor that Alpha is a "deep value buy" right now, and I'm rating the coal producer to outperform the markets over the long haul because it just doesn't make sense to kill off these companies. I suspect these draconian rules will not stand for long so I'm rating Alpha on CAPS to beat the broad market averages over the next five years.
Add Alpha to your own watchlist to see if the promise to bankrupt the industry holds or if there's hope that change will be coming.
Stop digging the hole
With mines in Peru and Mexico, Southern Copper hasn't yet had to worry about being bankrupted by a harsh regulatory environment, but others like Freeport-McMoRan (NYS: FCX) may soon feel the effects from the 20% export tax that Indonesia is imposing on miners. The ultimatum is miners either build smelters in the country and process the ores there, or pay the huge tax. Freeport, which operates the world's largest gold mine at Grasberg, is currently exempt because of its long-term contracts, but the government wants to renegotiate them.
Southern Copper recently reported earnings that beat analyst expectations for revenues and profits, but it did see a weakened pricing environment that it was able to offset by higher sales volumes. But copper prices are rising again despite the financial wreck under way in Europe because Germany still represents the one solid economy where sentiment is on the rise.
With the possibility of higher prices and the chance to steal markets from miners reeling from Indonesia's tax policies, it's understandable why 96% of the more than 4,600 CAPS members rating Southern Copper see it beating the Street. Highly rated CAPS All-Star Chemdawg thinks a rising tide in commodities will lift the copper miner's boat the most, but tell us on the Southern Copper CAPS page whether it will maintain its rich patina.
With the stock trading at just 10 times earnings and paying a dividend that yields nearly 7%, it may be one that's too valuable to pass up.
The ball's in your court
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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