Despite what you’ve heard, the U.S. economy actually looks pretty healthy. And that’s helping down-and-out metals and materials stocks — which were bombed out since the summer of 2014 on growth and deflation fears — bounce back in a big way.
Consider that U.S. durable goods orders increased 4.9% in January for the strongest result since March of last year. Both real personal income and real consumption just rose to fresh record highs. And the Atlanta Fed’s GDPNow real-time tracking estimate shows a gain of 2.1% for the current quarter, up from the previous quarter’s upwardly revised gain of 1.0%.
Even the Citigroup Economic Surprise Index, one of my favorite indicators, is in the midst of a nice recovery rising form a low of -55.7 in early February to -21.4 on Friday.
As a result, bargain hunters are crawling over themselves to get into materials stocks since they are poised to benefit the most from a resurgence of inflation and economic growth. The SPDR S&P Metals and Mining (ETF) (XME) recommended to Edge subscribers is up 4.1% on Monday alone.
If you want in on the action, here are seven stocks in the sector to consider, in order of potential upside.
Mining and Materials Stocks to Buy: Fibria Celulose SA (ADR) (FBR)
Potential Upside: 15%
Shares of Fibria Celulose (FBR), the Brazilian maker of paper pulp from eucalyptus trees, has jumped 11% off of its mid-February low as it works to get back above its 50-day moving average.
FBR is a rare materials stock that actually trades above its 2014 lows as demand for toilet paper and copy paper isn’t as cyclical as, say, iron ore.
A run at the 200-day moving average, which was last touched in December, would be worth a 15% gain from here.
Mining and Materials Stocks to Buy: Cemex SAB de CV (ADR) (CX)
Potential Upside: 27%
Mexican cement maker Cemex (CX) is quietly and calmly rallying off of its January low, pushing its 20-day moving average over its 50-day MA for the first time since early 2015.
A move to the 200-day MA, which hasn’t been touched since late 2014, would be worth a 27% gain from current levels.
Edge Pro subscribers are enjoying a 43% gain in their March $5 CX calls.
Mining and Materials Stocks to Buy: Rio Tinto (RIO)
Potential Upside: 30%
Rio Tinto (RIO) — the giant London-based materials producer that digs everything from copper and gold to nickel, diamonds and uranium out of the ground — is enjoying a nice rally off of its January low to jump back over its 50-day moving average for the first time since November. Shares have been on the slide since 2014, during which it lost more than 60% of its valuation.
A return to the 200-day moving average would be worth a nearly 30% gain from here.
Mining and Materials Stocks to Buy: Barrick Gold Corporation (USA) (ABX)
Potential Upside: 37%
Gold miner Barrick Gold (ABX) just can’t be stopped, and has been a fixture of my articles over the past two months after achieving launch trajectory back in January. The ferocity of the uptrend demonstrates how quickly turnarounds can happen as short sellers are forced to buy back in to close losing trades.
ABX has broken above its 2015 high, reaching levels not seen since 2014, and driving the total gain to Edge subscribers to 84%-plus.
Although it is already quite extended, watch for a possible run at its 200-week moving average (not touched since 2012), which would be worth a 37% gain from here)
Mining and Materials Stocks to Buy: United States Steel Corporation (X)
Potential Upside: 50%
The company that J.P. Morgan — yes, the man — launched in the early 1900s as the largest-ever initial public offering at the time is on the rebound after suffering a vomit-inducing 87% price wipeout from its 2014 high into its January low.
Shares of U.S. Steel (X) have since rallied 50% and are entering a confirmed uptrend for the first time since last summer.
A run at the 200-day moving average, which hasn’t been touched since late 2014, would be worth another 50%-plus gain from here.
Mining and Materials Stocks to Buy: ArcelorMittal SA (ADR) (MT)
Potential Upside: 76%
Steelmaker ArcelorMittal (MT) is coiled like a spring right on its 50-day moving average — a level it hasn’t been able to rally above since last summer. Shares have been in a downtrend since 2008 as the steel industry has been plagued by massive oversupply and tepid demand.
But expectations have fallen so low that positive surprises could encourage a rapid, short-covering rebound rally to its 200-day moving average — a run that would be worth a 76% gain from here.
Mining and Materials Stocks to Buy: Teck Resources Ltd (USA) (TCK)
Potential Upside: 150%
Shares of Teck Resources (TCK) — a miner of copper, coal, zinc and other metals — have surged off of their January low to challenge their 200-day moving average for the first time since May. The company, which holds interests in 13 mines throughout the Americas, has been in a persistent downtrend since early 2011 and hasn’t rallied above its 200-day moving average since late 2012.
On its earnings call from Feb. 11, the company talked up its cost-cutting measures, inventory adjustments, and strong financial position.
A break of the 200-day moving average should set up a run at the May high near $15, which would be worth more than a double from here.