Recently, many commodities have been dragged down by technical factors. As a result, the price of silver, platinum, and copper have all been hit and are trading more than one standard deviation below their 50-day moving average. Speaking entirely from a technical standpoint, this “oversold” condition quite possibly could warrant a “buy” opportunity.
However, looking past the technical analysis and focusing more on fundamentals; these three commodities stocks look like a very good buy. Silver, platinum, and copper are three metals that have been sold off sharply in recent months due to fears that the global economy is slowing and that the slowdown would hurt demand for these metals. In recent weeks nevertheless, economic data has pointed away from recession, a brighter outlook for Europe, and a brighter global economic outlook. The sharp sell-off of these metals has posed an opportunity for a strong rebound for these three positions:
Coeur d'Alene Mines Corporation (CDE) is a silver producer with gold assets located in North America. The company, through its subsidiaries, is engaged in the operation, ownership, development and exploration of silver and gold-mining properties and companies located primarily within South America, Mexico, United States, and Australia. The current market price is $26.71 with a one-year analyst price target of $35.14. This symbolizes a 31.56% upside potential. Coeur d'Alene's days sales in receivables and interest funding are the highest within its gold mining subsector. Based on Trailing P/E, Coeur d'Alene currently trades at a 38% discount from its peers, and its forward P/E of 6.3x is at the low end of its five-year range (5.7 – 100). Furthermore, I like the fact that the industry watchers have already placed price targets for the underlying spot market for silver in 2012, and the outlook is very bullish. Bloomberg predicts silver will rebound from the current $32 to $42 by the first quarter of 2012. Overall, it seems this stock has been oversold because of speculation, yet the company’s fundamentals are very strong, and the outlook for silver looks extremely bright.
Freeport-McMoRan Copper & Gold Inc. (FCX) is a copper, gold and molybdenum mining company. Its portfolio of assets includes the Grasberg minerals' district in Indonesia, mining operations in North and South America, and the Tenke Fungurume (Tenke) minerals' district in the Democratic Republic of Congo (DRC). The current market price is $42.8 with a one-year analyst price target of $51.29. This represents a 19.84% upside potential.
I am very bullish on this company for several reasons. First, the acquisition of Phelps Dodge has made Freeport the world’s largest publicly traded copper company and a new industry leader with large, long-lived, geographically diverse operations. This acquisition made Freeport the largest producer of molybdenum and the second largest producer of copper. Secondly, Grasberg is one of the premier hard-rock mines in the world with sufficient current reserves to support production for over 40 years and excellent exploration potential. Lastly, Freeport has a favorable cost structure that has resulted in strong cash flow, and a dividend yield of 2.3%. Even if copper as a commodity does not see a rise in price, the company's current mining assets are worth roughly $65 a share making this a highly oversold company with huge upside potential.
ETFs Physical Platinum Fund (PPLT) is an ETF that holds the physical metal platinum. The investment seeks to reflect the performance of the price of physical platinum less the expenses of the Trust’s operations. The fund was designed for investors who want a cost-effective and convenient way to invest in platinum with minimal credit risk. The current price is $162.84.
The interesting fact about platinum is the fact that it acts like a metal in its use for jewelry like gold, but also it works in conjunction with the auto industry. More than 30% of platinum demand is driven by its auto catalyst applications. The auto sector restocking and industry projections predict increased automotive production going forward, which could place upward pressure on platinum prices. The price of platinum has fallen sharply from $1900 to $1500, despite the warnings of falling production and scarcity. I believe this metal is heavily oversold, and with recession fears behind us has a huge upside potential. This ETF is at its lowest level since it was introduced, making it the perfect buy opportunity to capitalize on this commodity.