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As metals shine, so will these 5 stocks
Sure, gold is hitting 25-year highs. But it's not the only hard asset with solid prospects, which is why these metal-producing companies will reap big rewards.
By Jim Jubak
Gold isn't all that glitters right now. Even though it hit a new 25-year high at $562 an ounce Monday, I think the prospects for other metals -- and the stocks of the companies that mine them -- are brighter for the next six months. Platinum, palladium, titanium and zinc all have the potential to outshine gold over that time span.
I'm not knocking gold and gold shares, mind you. The metal's appreciation is being driven by two strong trends, neither of which is anywhere near an end:
- Cash is flowing into commodities -- including gold -- as an asset class from conservative big-money investors that include pension funds and endowments. Commodity indexes, a favorite vehicle for large institutional investors, ended 2005 with $70 billion, according to Goldman Sachs. That's up from $45 billion at the end of 2004 and $15 billion at the end of 2003. But that's still just a drop in the asset-allocation bucket, which is why this trend still has a way to go.
- Demand has outstripped supply. The real demand for gold soared by 20% in dollar terms in the first nine months of 2005, according to National Bank Financial, as buyers from India, China, and the Middle East have stepped up their buying of gold for jewelry. But the global supply of gold hasn't kept pace with that demand. Mine supply climbed just 3% in the third quarter of 2005.
But similar trends work for other metals, too, and over the next six months I think they're likely to work better for platinum, palladium, titanium, and zinc than they are for gold.
Zinc, for example, is projected to be in tight supply through both 2006 and 2007. Demand is high, thanks to soaring imports from China. And supply is constrained, thanks to a shutdown of zinc smelters due to a lack of zinc concentrate. So zinc inventories have been falling on the London Metals Exchange even as inventories of copper and nickel have climbed.
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Platinum demand has soared, and looks set to keep on growing through 2010, as diesel vehicles make up a bigger share of the global auto and truck fleet. In Europe, according to RBC Capital Markets, diesels will grab 55% market share by 2010, for a total of 9 million vehicles. Each of those diesels uses platinum in the catalytic converters that works to make this generation of diesels clean enough to meet European pollution standards. Platinum demand from diesel catalytic converters is projected to hit 1.9 million ounces in 2005 and 3.3 million in 2010. New supply to meet this demand should start coming on line in 2007 and 2008. Palladium is at the moment cheaper than platinum for catalytic converters and jewelry. And as platinum demand -- and its price -- rise, the theory goes that auto companies and jewelry consumers in China will substitute palladium for platinum when they can. As that extra demand for palladium kicks in (and jewelry demand is expected to climb 55% in 2005 from 2004), J.P. Morgan projects that palladium could climb to north of $400 an ounce over the long term.
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