Blink and you might miss it, but a turnaround is at hand. Hope is returning.
Since commodity prices and enthusiasm over the health of the global economy peaked in the summer of 2014, material stocks have been a wasteland of disappointment and broken dreams. The combination of a Chinese slowdown, reduced demand, a stronger dollar and the collapse of crude oil weighed heavily on companies in the sector.
The Materials Select SPDR (XLB) lost more than 27% from its 2015 high into the low set in January. Many individual stocks were hit much worse. Alcoa Inc (AA) lost 65%. Freeport-McMoRan Inc (FCX) lost 90%-plus.
But now, with global central bankers turning the spigots of stimulus back on and Chinese authorities working hard to address issues like bad dollar-denominated debts and exchange-rate volatility, a rebound has materialized. Material stocks are leading the way higher: The S&P 500 is up 5% from its January low while the XLB is up about 12%.
While I’ve recommended the broad Metals & Mining SPDR (XME) to Edge subscribers, those looking for individual stock plays in the sector should consider the following five names.
Mining Stocks Returning to Life: Vale SA (ADR) (VALE)
Brazilian steelmaker Vale SA (ADR) (VALE) has crossed back up and over its 50-day moving average for the first time since November — up some 40% from the lows in January.
This is the culmination of an epic downtrend in the stock that’s been in place since early 2011 but really began to pick up speed in the middle of 2014.
Merely a run at the 200-day moving average, which was last tested in May, would be worth another 50% gain from here.
Mining Stocks Returning to Life: Freeport-McMoRan Inc (FCX)
FCX — which has been the focus of some attention by activist investor Carl Icahn — has enjoyed nearly a double off of its January low.
Since Icahn got involved, the company has worked to cut its debt load by cutting its dividend and selling a 13% stake in its Morenci Mine for $1 billion in cash.
Watch for a run at the 200-day moving average, taking shares back to its September-November trading range, which would be worth about a 70% gain from here.
Mining Stocks Returning to Life: Alcoa Inc (AA)
Aluminum maker AA has bounced by a third from its January low, rebounding from disappointing earnings (lots of abuse of “one-time” charge offs) and a move by Moody’s to put the company on review for possible downgrade.
Management responded that it continues to aggressively cut costs and work towards a spin-off of its value-add divisions.
A run at the October-December high near $10 a share would be worth a 25% gain from here.
Mining Stocks Returning to Life: Cemex SAB de CV (ADR) (CX)
Mexican cement maker Cemex SAB de CV (ADR) (CX) has lifted back over its 50-day moving average, setting the stage for the initiation of its first medium-term uptrend since a painful downtrend started in 2014 and wiped away some 70% of the share price.
With a solid base of support between $4 and $4.50, I’m looking for a run at the 200-day moving average near $7.
In anticipation, I’ve recommended the March $5 CX calls to Edge Pro subscribers.
Mining Stocks Returning to Life: Century Aluminum Co (CENX)
Aluminum maker Century Aluminum Co (CENX) is lifting out of a consolidation range going all the way back to August, challenging its 200-day moving average for the first time since last February.
Analysts at Cowen just raised their price target on the stock after the company reported solid results on Thursday.
CENX reported a loss of 53 cents per share (eight cents better than analysts expected) on higher-than-expected revenues.