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As metals shine, so will these 5 stocks
(Page 2) of 2
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That doesn't exhaust the list of metals ready to shine. In my regular weekly appearance on CNBC's Morning Call, I recommended the stocks of a zinc producer, a platinum producer, and a titanium producer.
Teck Cominco (TCKBF, news, msgs) is one of the world's largest producers of zinc (it's the largest Western producer) -- and of significant amounts of copper, coal, molybdenum, lead and gold. It's the zinc that interests me, right now though, since the price of zinc for physical delivery has been climbing. Inventories of zinc fell on average for the first nine months of 2005, and then finished the year by plunging at the year's fastest pace as China's demand for zinc exploded. From January to November 2005, Chinese zinc imports soared 160% from the same period in 2004, according to Desjardins Securities. Along with the zinc, buying shares of Teck Cominco brings an investor a 40% stake in an Alaska gold mining project (worth about $2 a share, according to Scotia Capital), a 15% stake in the Fort Hills Oil Sands project in Alberta, and metallurgical coal operations that provide about 30% of the company's earnings. It's that exposure to metallurgical (not fuel) coal that presents the one potential fly in the ointment that I can see for this stock. Some Wall Street analysts are projecting a decline in the price of metallurgical coal in 2007. I doubt that Wall Street will start to worry about 2007 projections until the second half of 2006. If I'm right, that gives investors a six-month window on this stock. Analysts are projecting that Teck Cominco will grow earnings per share by almost 80% in 2005. Our StockScouter doesn't rate the shares of this Canadian company.
Stillwater Mining (SWC, news, msgs) wraps up platinum and palladium in a single package. Platinum hit an all-time high of $1,049 an ounce on Jan. 16. I think supply of platinum is likely to remain tight -- and prices high -- through 2006 on a pick up in demand for diesel engines and on growing demand for the metal in computers, LCD screens, and consumer electronics. With new supply limited for (supply grew by just 3.5% in 2005), the degree of tightness in the platinum market will depend on the degree to which auto makers and jewelry consumers substitute palladium for platinum. Stillwater turns out a winner if substitution is low or high. The company's earnings are so leveraged to palladium that every $50 an ounce increase in the price of that metal adds, RBC Capital Markets calculates, 37% to the stock's net asset value. Analysts project that Stillwater Mining will earning 32 cents a share in 2006 and then 61 cents a share in 2007. Our StockScouter rates these shares a 9 out of a possible 10.
RTI International Metals (RTI, news, msgs) is a metals company, it's true, but perhaps it's more accurate to think of this producer of titanium as a leveraged play on the continued recovery of the airline industry and the fortunes of big suppliers such as Boeing (BA, news, msgs). Sure, RTI International sells to other markets -- the chemical industry uses its strip and plate products and the oil drilling industry uses the company's subsea manifolds, but RTI lives and dies with aerospace sector. Right now the living is good. Airbus booked record plane orders in 2005, and Boeing beat its rival on the value of orders $120 billion to $100 billion. No wonder that the few analysts who follow RTI are looking for earnings growth of 106% in 2006. RTI is actually more leveraged to the aerospace recovery than even Boeing is. For Boeing's stock, the last 52 weeks have been great -- its shares returned 35% as of Jan. 17. RTI did better -- its shares returned 101% for the 52 weeks. All those orders booked in 2005 by Boeing and Airbus should keep RTI shares humming in 2006. Our StockScouter rates these shares a 5 out of a possible 10.
And, as always, I have two more "exclusive" picks for readers of CNBC.com on MSN Money.
Titanium Metals (TIE, news, msgs) isn't as leveraged to the aerospace recovery as RTI International Metals. It's a bigger company with about 60% greater sales, so it takes more dollars to boost revenue and earnings on a percentage basis. In 2006 analysts are projecting that Titanium Metals will grow earnings per share by just 60%, short of the 106% projected for RTI International. But Titanium Metals does have something going for it that I like to see after a stock has climbed 486%, as these shares did in the 52 weeks that ended on Jan. 17: Lots of investors hate this stock. In December, short sellers, who borrow shares hoping that the stock price will fall before they have to return them, had sold short 21% of the outstanding shares of Titanium Metals. Now the short sellers could be right and this stock could be headed for a fall. But the stock isn't ridiculously expensive at 25 times projected 2006 earnings per share. And if the shorts are wrong, we're looking at one great big rally in the shares as shorts buy to cover their bets. Our StockScouter rates the shares a 9 out of a possible 10.
BHP Billiton (BHP, news, msgs) wraps up most of the commodity sector into one package for investors who want to own it all but don't want to buy a dozen stocks or trust an index to get the weightings right. The Australian company produces oil, natural gas, iron ore, nickel, copper, diamonds, coal, silver, titanium, zinc, lead, and aluminum. The whole package is reasonably priced, too, at 13 times projected earnings for the fiscal year that ends in June 2006. Our StockScouter does not rate these shares.
Editor's Note: A new Jubaks Journal is posted every Tuesday, Wednesday and Friday. Please note that Jubak's Picks recommendations are for a 12-to-18 month time horizon. See Jubak's CNBC Picks for shorter six month recommendations. For suggestions to help navigate the treacherous interest-rate environment see Jim's new portfolio Dividend stocks for income investors. For picks with a truly long-term perspective see Jubak's 50 best stocks in the world or Future Fantastic 50 Portfolio.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak did not own or control shares of any of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column.
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