I still believe a secular recovery will start to take shape in 2013 despite near-term headwinds. Thus, the opportunity is ripe to get into cyclical materials stocks at a discount. After all, you have to get in early to ride the big leg up. Wait for the gains as proof, and it will be too late.
I particularly like Southern Copper (NYSE:SCCO) for this kind of play. The company’s revenue is strong and earnings have steadily moved higher since 2009 lows, thanks to copper itself moving higher while other metals like aluminum are seeing horribly soft pricing. Looking forward, a budding recovery in homebuilding (or at least a near-bottom) bodes well for copper demand, as does strength in tech and electronics businesses that use copper for wiring and components.
Throw in a nearly 3% dividend yield based on its last quarterly payout of 24 cents annualized (or a 5% yield if want to use the last four consecutive payouts), and you have a strong reason to buy and hold this pick for a year or two.
It might sound counterintuitive to go for a cyclical stock on a pullback, but buying at the top of the cycle inherently means buying a top. So strike on a pullback.
— Jeff Reeves (that’s me)