As 2012 draws to an end, we turn our attention to 2013 and look at the stocks which we think are well positioned to outperform in 2013. While most of the gold equities have failed to follow the path of gold prices in 2012, there are stocks which are all set to perform well in 2013 and Goldcorp (GG) is one of them. Additionally, we have a positive outlook on iron ore prices in 2013, and Vale S.A. (VALE) is our favorite play on iron ore. Finally, we will have a look at CF Industries Holdings (CF), the second largest producer of Nitrogen and one of our favorite stocks for exposure to agriculture chemicals.
Goldcorp is one of the largest gold producers in the world. It has five mines in Canada and the US, three mines in Mexico, and two mines in Central and South America. Other than gold the company also produces silver, copper, lead, and zinc.
The large Pueblo Viejo mine in the Dominican Republic starts commercial production in December 2012, generating significant cash flows for the company in 2013. In the first five years of production the mine is expected to add 415,000 to 450,000 ounces of gold to GG's portfolio every year. Moreover, three more projects (Cochenour, Eleonore, and Cerro Negro) are expected to come online in the next couple of years, boosting gold production by more than 60% by the end of 2015.
GG is trading at price/earnings ratio of 18.5 and forward P/E of 12.2. It has a PEG ratio of 0.6. GG has price/book ratio of 1.3 compared to industry average of 1.6. The Canadian gold miner has a dividend yield of 1.5%.
GG also has a solid balance sheet, and minimal debt among its large peers. While some of the biggest gold miners are struggling with huge debt loads and potential ratings downgrade, Goldcorp's ratings are the most secure. Standard & Poor's rating agency recently said in a press release: "Goldcorp's rating is the most secure. It likely wouldn't face a downgrade unless the gold price dropped by 50% because of its strong track record of boosting output, lowering costs and maintaining a stable debt burden."
Goldcorp has debt/equity ratio of 0.03 far better than the industry average of 0.18. GG's debt/assets ratio of 0.03 is also better than the industry average of 0.11. The Canadian gold miner has EBITDA/interest ratio (higher the better) of 46.74 compared to the industry average of 18.46. Debt/EBITDA ratio (lower the better) of 0.53 compared to the industry average of 1.11. Finally GG has CFO/total debt ratio (higher the better) of 2.64 compared to industry average of 0.81.
Vale S.A. is a metals and mining company. It engages in the production and export of iron ore, pellets, manganese, and ferro-alloys, which are raw materials needed for steelmaking. Vale is the world's largest producer of iron ore and the second largest producer of nickel. The company also produces copper, thermal and coking coal, phosphates, potash, cobalt, kaolin, and platinum group metals.
We have a positive outlook on iron ore prices in 2013 and Vale with more than three quarters of EBITDA levered to iron ore provides the best exposure to the commodity. A lack of new supply in the short term and a modest improvement in Chinese demand are indicating an upside in iron ore prices in the near future. The Brazilian miner is a low cost producer. It has attractive valuations, long life assets, strong balance sheet, and attractive dividend yield.
Vale is trading at attractive valuations. It has price/earnings ratio of 5.0 compared to industry average of 14.7 and Vale's own 5 years' average of 12.8. The stock is trading at a forward P/E of 7.2 against S&P 500 forward P/E of 14.2. Vale has price/book ratio of 2.2, the same as the industry average. The company has price/sales ratio of 1.3 compared to 2.2 of industry. Vale has forward dividend yield of 3%.
CF Industries Holdings
CF is the second largest producer of nitrogen in the world and is the third largest producer of phosphate in North America. CF operates seven nitrogen production sites in North America, and has joint ventures in Trinidad and the UK.
Nitrogen is crucially important in driving high crop yields and it tends to support strong demand for urea, ammonia, and UAN every year. Additionally the low cost natural gas, a primary raw material for nitrogen production, has significantly reduced CF's costs and moved it to the low end of the cost curve. The severe U.S. draught last year has left the crop supplies tight, and as farmers seek to maximize production to take advantage of the elevated corn pricing environment, we expect high application of CF's nitrogen and phosphate products next year. Additionally, we expect the strong spring demand to further support higher volumes and pricing.
CF is also trading at attractive valuations. The company has price/earnings ratio of 7.2 against industry average of 14.7, and five years' company average of 13. The stock has price/book ratio of 2.3 against industry average of 3.2. Price/sales ratio of 2.1 compared to industry average of 2.5. CF has price/cash flow ratio of 6.3 compared to 10.5 of industry. CF is trading at forward P/E of 6.9.
CF also has a strong balance sheet. It has a debt/equity ratio of 0.29 compared to industry average of 0.37. CF has debt/assets ratio of 0.16 against industry average of 0.19. CF's current ratio of 2.53 is also better than the industry average of 1.73. The company has EBITDA/interest ratio (higher the better) of 23.26 compared to industry average of 12.85. CF has CFO/total debt ratio (higher the better) of 1.29 compared to industry average of 0.74 and lastly debt/EBITDA ratio (lower the better) of 0.50 compared to industry average of 1.40. The company has a dividend yield of 0.80%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.