Materials stocks have gone from zero to hero in the past few weeks, leading the market down from its high in May into the late September low before turning around and blasting higher. The turnaround in materials and mining stocks has been impressive and was initially driven by panicked buying by short sellers.
The whiplash was so severe that Goldman Sachs highlighted in a recent note to clients that the flip of momentum (onetime leaders becoming the laggards while laggards take the lead) was so violent that it’s happened on this scale less than 1% of the time since 1980.
Many are skeptical the move in materials (as well as industrials and energy stocks) can last. But a sense that global central banks are responding to recent economic weakening — and a pushback in the odds of a Federal Reserve interest rate hike this year — suggest the rally could have legs.
In response, I’ve recommended the Market Vectors Gold Miners (GDX) ETF to Edge subscribers.
If you’re looking for individual plays in the area, here are five materials and mining stocks to watch:
Mining Stocks Leading the Way: Silver Wheaton Corp. (USA) (SLW)
Silver Wheaton (SLW), like many other gold and silver stocks, is lifting off of a multimonth basing pattern as lessening odds of a 2015 Federal Reserve rate hike help to increase inflation expectations and weaken the U.S. dollar — both of which are helping precious metals prices.
The company will report quarterly results on Nov. 3 after the close.
Mining Stocks Leading the Way: Freeport-McMoRan Inc (FCX)
Metals miner Freeport-McMoRan (FCX) is lifting out of a basing pattern going back to July as prices of everything from copper to aluminum and gold are recovering. The company recently accepted two board members from activist investor Carl Icahn and is looking at strategic options for its oil and gas business.
The company will report results on Oct. 22 before the bell.
Mining Stocks Leading the Way: Alcoa Inc (AA)
Despite reporting weaker-than-expected results last week to kick off the third-quarter earnings season, Alcoa (AA) is still within the bounds of a medium-term uptrend that started in late August. This could be a buying opportunity within that context.
While earnings missed, Alcoa stuck a bullish forecast of aluminum demand doubling between 2010 and 2020.
Mining Stocks Leading the Way: Vale SA (ADR) (VALE)
Brazilian steelmaker Vale (VALE) has been trading near the $5 level since July as steel prices have struggled. A lift up and out of the four-month trading range looks likely as base metal prices rebound — setting up a test of the 200-day moving average last tested in May, which would be a 25% move from here.
Analysts at Cowen recently attended the company’s analyst day and came away impressed with its nickel and copper assets in Canada.
Mining Stocks Leading the Way: Barrick Gold Corporation (USA) (ABX)
Barrick Gold (ABX) is taking on its late August high as it tries to lift up and out of a four-month basing pattern. The 200-day moving average was last challenged in April and May; a similar move now would be worth a 37% gain from current levels.
The company will report results on Oct. 28 after the close.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
