By Marshall Hargrave
After identifying the most popular stocks among hedge funds (see our top 10 here) according to their third quarter 13F filings, we have decided to break down the top ten stocks that hedge funds love in the metals industry. Many of these companies will benefit from expected price appreciation in the various metals - including aluminum, copper, nickel, iron and gold. Also driving growth will be volume increases on the back of global GDP growth of 2.2% in 2012 and 2013. Our list includes the hundreds of hedge funds and prominent investors that are required by the SEC to disclose their public equity holdings quarterly. In descending order, we have outlined the most-loved metals stocks based on the aggregate number of funds owning each.
Southern Copper Corp (SCCO) had 17 filers owning the stock, putting it in tenth. This copper company trades at the high end of the industry at 16x earnings, with only a 10% five-year expected earnings growth rate. We believe that Southern Copper is fairly valued but feel its dividend is attractive - currently yielding 10% due to a one-time payout. With nearly $1.2 billion in cash on hand, the metals company could easily pay out a stable 6% yield.
Anglogold Ashanti Limited (AU) found itself tied for 7th with 20 filers. Anglogold trades near the low-end of the industry at 9x earnings, and its 6x forward earnings makes it even more of a value play. Having lowered full-year 2012 production, the gold miner is down almost 30% year to date, but pays a 1.9% dividend yield.
Cliffs Natural Resources Inc (CLF) was another stock with a total of 20 filers at the end of 3Q. This iron ore producer trades at the lowest P/E among our 10 stocks, at 4.5x trailing earnings. We would remain cautious with Cliffs, as it trades at 8x forward earnings - double its trailing P/E. The miner's dividend yield of 8.8% is attractive, but given its yearly dividend payout is currently $350 million and the company only has $35 million of cash on hand, we would be wary of a dividend cut.
Molycorp Inc (MCP) came in as the third stock tied for the seventh most popular metals stock loved by hedge funds with 20 filers. This rare earth minerals company has an incalculable P/E and trades over 40x forward earnings. Even with its robust growth rate - expected 20% annual earnings growth over the next five years - Molycorp is down over 60% year to date and we would hold off on jumping into the stock. Billionaire George Soros found value in Molycorp during the third quarter, taking a new position in the company (check out Soros' newest picks).
Agnico-Eagle Mines Limited (AEM) had 22 filers owning the company at the end of 3Q to come in sixth. Agnico is another metal miner trading at an incalculable P/E. The Canada based gold miner trades more in line with the industry on a forward P/E basis at 20x, but given its below average growth rate of 8%, we would also be cautious with this company.
Vale SA (VALE) saw a net increase of 4 filers and called 26 filers owners to be the fifth most popular metals stock owned by hedge funds in 3Q. This iron ore producer trades at only 7x, well below other major iron companies BHP Billiton (12x) and Rio Tinto (22x). The miner also pays a robust dividend that yields over 6% and is down over 15% year to date. Billionaire Ken Fisher of Fisher Asset Management - also investing column author at Forbes - was a big fan of Vale during 3Q, upping his 2Q stake by over 200% (check out Fisher's newest stock picks).
Kinross Gold Corporation (KGC) came in at fourth with 31 filers, following a net increase of 6 filers - the largest of all 10 stocks listed. The gold miner has a beta of only 0.4 and is down only 10% year to date. Despite its incalculable trailing P/E, the gold stock's 9x forward P/E makes it a solid value play.
Barrick Gold Corporation (ABX) barely beat out Kinross for third with 32 filers, after a net decrease of 8 filers owning the stock from 2Q. Barrick is one of the top gold miners in the world and trades well below its principal competitor Goldcorp at 10x earnings, compared to Goldcorp's 20x. After missing earnings estimates each of the last four quarters, the company has held up relatively well, despite being beaten down by close to 25% year to date. Barrick Gold is one of billionaire Julian Robertson's cheap stock picks of 3Q (check out his deep value plays here).
Newmont Mining Corp (NEM) was in second with 42 filers after a net decrease of only three filers. Despite Newmont's 100x trailing P/E, its forward P/E of only 9x has grabbed our attention. The gold miner has a beta of only 0.3 and a solid dividend that yields over 3%.
Freeport-McMoRan Copper & Gold Inc. (FCX) was the top metals mining stock with 49 filers owning shares. This copper and gold giant has one of the highest betas of our 10 stocks at 2.0, which should be a benefit to the company as gold prices rise and copper demand increases. At a 12.5x trailing P/E, Freeport is a good buy, trading at only 8x forward earnings. A final strong suit of the company is its 3.2% dividend yield.