With the markets at all-time highs, many investors are worried they’ve missed their opportunity–but they haven’t. Rest assured, while the easy money may be gone, value stocks exist in every market.
Many stocks in materials, mining and metals are at multi-year lows and have largely missed the rally. Despite strong performance in the underlying companies, stocks in these sectors sell-off frequently into economic uncertainty, creating wonderful value opportunities.
Here are a few of the best value stocks in mining and metals today.
Barrick Gold Corporation (USA) (NYSE:ABX) and Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)
Gold is one of the most unique metals, because its price fluctuates on so many factors aside from actual physical supply. If supply mattered, prices would be much higher than they are right now, as there is truly an enormous scarcity of this precious metal. Barrick Gold Corporation (USA) (NYSE:ABX) (92% of revenues from gold) and Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) (15%) help the world find it.
These stocks have both seen their prices decline, in part because of an improving economy. As odd as that may sound, an improved economy means that fewer investors will flee to hard assets like gold, thus lowering gold’s value. But that doesn’t tell the whole story; Freeport has many other business lines (gas, copper, etc.) and Barrick Gold Corporation (USA) (NYSE:ABX)’s stock suffered even when gold prices were at multi-year highs.
The truth is that these two stocks are the “ugly step children” of the market–no matter what they do it’s just not good enough. Despite out-performance, investors shy away from Barrick Gold Corporation (USA) (NYSE:ABX) out of a fear of gold’s future. Likewise, regardless of performance Freeport will always have a negative headline out about its gold exposure or some conjured up negative impact that China and India are having on copper.
The headlines are merciless, the opinions are negative, but here are the facts:
1). Both companies are poised to see revenue growth from rebounds in gold prices, and Freeport will also benefit from increased copper output.
2). Both companies have solid, positive earnings and dividends north of 3%
3). Both companies have a history of meeting (not beating) annual (not quarterly) earnings estimates.
And while that last point might seem obscure, it’s actually the most profound. Freeport is projected to earn $4.38/share this year and Barrick Gold Corporation (USA) (NYSE:ABX) is projected to earn $4.09. With stabilization of their core markets it’s likely that these stocks could each see a P/E of 12 at some point in 2013. Should that happen, the stocks will trade at prices near double their current value.
Alcoa Inc (NYSE:AA)
Alcoa Inc (NYSE:AA) is by far the most speculative name on the list, as they haven’t been performing all that well. The company’s earnings were at a multi-year low of just $0.24/share in 2012, but Alcoa Inc (NYSE:AA) recently reported earnings that point to a brighter future. The aluminum maker kicked earnings season off with a bang, checking in with a strong beat of estimates and a 59% increase in earnings, although results were slightly aided by one-time benefits.
But one-time items aside, Alcoa Inc (NYSE:AA) still beat expectations (of $0.08) with earnings of $0.11/share, ahead of last year’s numbers. What makes these results impressive is actually the fact that aluminum prices are down. Yes, low aluminum prices are a downer, but they’re cyclical, and if Alcoa is turning out a strong profit in this environment, what will it do when aluminum prices rebound?
