Alcoa Inc (AA), Vale SA (ADR) (VALE): Industrial Metal Prices Will Go Up Eventually

Freeport is doing better than Alcoa, with net margin at 16% versus Alcoa’s 4%. That should highlight some of the price issues that punish Alcoa. Despite Freeport being more profitable with less debt and a dividend yield approaching 4%, it is also near its 52-week low of $30.54.

It seems that mining stocks, in general, are suffering from a decline stemming from falling earnings. Freeport’s EPS ttm has been declining, but may have reached a bottom. Freeport is considered a lot because of gold, which has lagged lately, disappointing many gold bugs. Now that the stock is approaching its 52-week low, it is time to keep an eye out for the bottom.

Looking overseas for metal opportunities

All mining companies tend to be very international, but if the two companies above are not international enough, then consider Vale SA (ADR) (NYSE:VALE), which is a major mining company out of Brazil. With this company, you gain exposure to iron and nickel, along with a ton of other stuff. The company also has an energy unit that runs hydroelectric dams and operates railways and maritime transport in Brazil.

The company is nearing its 52-week low, but deservedly. Net income ttm, and with it EPS ttm, has been falling since late 2011. Falling metal prices have hurt the company.

Despite Vale’s seeming weakness, a combination of a strong Brazilian economy in relative terms, coupled with an eventual increase in the price of industrial metals could help the company. It posted a massive quarterly loss. The stock may bottom out, though be on the lookout for a general market pullback. If it does hit a bottom, Vale SA (ADR) (NYSE:VALE) should definitely be considered, especially considering its 4.5% dividend yield.

Conclusion

Do not invest in all three companies. I would pick two that end up being your favorites. I like Alcoa Inc (NYSE:AA) and would probably stop there, but my second choice would be Vale. I cannot really see too much that recommends Freeport over Vale, but Freeport is characterized as a gold miner and I think it is going to get increasingly expensive to mine gold, depressing margins in the process.

All three companies are near their 52-week lows. An overall decline of the entire market could still push stocks lower, so do some digging and wait for the earnings season to get under way to see what happens.

Nihar Patel has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold.