In this article we will discuss the following seven stocks: Peabody Energy Corp. (BTU), Halliburton Company (HAL), The Mosaic Company (MOS), Baker Hughes Incorporated (BHI), The Dow Chemical Company (DOW), Hess Corporation (HES) and Cliffs Natural Resources Inc. (CLF).
The stocks discussed are commodity related basic materials stocks which I posit will double from their current shares prices based on macroeconomic, sector and company specific catalysts. These stocks have great stories and positive facilitators for future growth. However, many are trading at nearly half their 52 week highs due to incessant negative macroeconomic headlines from the Eurozone and a lack of confidence from Main Street based on the ever-present deleterious unemployment picture.
Four of the stocks making the list are energy related. Ironically, none of the building blocks of the “Wall of Worry” mentioned above have been able to put a dent the rising price of a barrel of oil. Oil has quickly climbed from its low of $76.46 on Oct. 3 to over $100 as of Wednesday. Oil has increased by 26% since October 3. Additionally, oil has broken above its 200 day moving average, which is extremely bullish for the commodity.
When the Eurozone gets their act together and the global economy achieves viable economic traction, you can kiss $100 a barrel oil prices goodbye. I envision a day in the not too distant future where we will look back at current energy prices and realize the days of $100 a barrel oil will never be seen again.
We saw an inkling of positivity in the headlines out of Europe last week regarding the Eurozone sovereign debt crisis as well as the US unemployment situation which triggered a rally of epic proportions. Friday is a critical day for the Eurozone and global markets. If things go well, this could be your last chance to pick up these stocks at this level. If you have powder dry, this is an excellent opportunity to pick up some shares. Additionally, the FOMC minutes for the two-day November meeting suggest that under current economic circumstances the Federal Reserve will may engage in a third round of quantitative easing. The solution to the Eurozone’s sovereign debt issues will inevitably lead to Euro printing presses cranking up, allowing them to paper their way out of their solvency problems, which will only spur commodities prices even higher.
All these stocks will benefit from what I see as a highly inflationary market going forward. Basic materials related stocks are poised for a rebound once the Eurozone crisis is put to bed and investors are able to focus on vast emerging market demand for oil, as well as basic materials for the rebuilding of Japan which has been long forgotten based on current events.
Compelling Fundamental Statistics
The stocks discussed are S&P 500 Buy rated large-cap or better stocks with current EPS rates of greater than 30%, price to earnings ratios of less than 10, PEG ratios of near or below one (with the exception of DOW at 1.71), price to sales ratios of 2 or less and trading from 30 to 50 % below their 52 week highs. Additionally, these stocks have great stories, positive catalysts for future growth and some pay dividends.
Moreover, most of these stocks are trading well below consensus analysts' estimates, have recent upgrades and positive analyst comments. Below are three tables with detailed statistics regarding each company's current summary, fundamental and technical information. Use this information as a starting point for your own due diligence.
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(Charts provided by Finviz.com)
Company Specific Potential Catalyst
Peabody Energy Corp.
Peabody Energy recently announced that it has acquired a 5.1 percent equity interest in Winsway Coking Coal Holdings Ltd. in a series of purchases of Winsway's shares on the Hong Kong Stock Exchange. The move further strengthens the strategic partnership between the two companies.
Peabody and Winsway currently operate a joint venture in Mongolia that holds coal and uranium licenses in Mongolia and is conducting an active exploration program in the South Gobi region and throughout the country. In addition, Peabody and Winsway have recently entered into a non-binding memorandum of understanding to establish a joint venture to market coal in China and the Asia-Pacific region. Deutsche Bank served as broker on the purchases.
Halliburton recently introduced the new RapidFrac™ completion system. The RapidFrac system allows operators to set new standards for fracture completion efficiency and post-fracture production. This innovative horizontal sliding sleeve completion system is a differentiating technology that allows for enhanced reservoir contact. In a changing landscape where operators are drilling longer laterals that require increasingly complex completions, the RapidFrac system delivers several unique differences from the “plug and perforate” system and other similar techniques. It allows operators to optimize completion design, lower operational risk, and materially reduce the time to first hydrocarbons.
The Mosaic Company
Mosaic recently announced it agreed to repurchase 21.3 million shares from the Margaret A. Cargill Trusts for approximately $1.2 billion. The purchase price will be $54.58 per share, the closing price of Mosaic's common stock on November 16, 2011.
This repurchase completes, well ahead of schedule, the disposition of 157 million shares designated to be sold during the 15-month period following the May 25, 2011 split-off transaction with Cargill.
Jim Prokopanko, President and Chief Executive Officer of Mosaic, said:
The purchase of Mosaic shares represents one of the best investment opportunities we've seen and a good use of our excess cash. We are pleased we were able to reach an agreement with the Trusts with respect to this transaction.
Baker Hughes Incorporated
Baker Hughes recently introduced new multistage stimulation technologies which enhance unconventional hydrocarbon recovery. Baker Hughes offers three multistage stimulation technologies that provide operators with time- and cost-efficient completion solutions to significantly increase production, improve recovery and preserve water during the pressure pumping process.
Neil Harrop, president of Completions and Production for Baker Hughes said:
It takes tailored fracturing and stimulation solutions to produce efficiently in the diverse shale formations that stretch across our globe where the minerals, structure and geology all differ vastly. FracPoint and OptiPort provide efficient technologies to complete and fracture a wide array of formations, where each has its own unique characteristics. These technologies allow us to customize a solution that maximizes results and minimizes impact.
The Dow Chemical Company
Dow AgroSciences, a wholly owned subsidiary of The Dow Chemical Company, recently announced the company has successfully produced 2,4-D choline in a commercial scale-up setting. This milestone is an indicator of the company's manufacturing expertise to produce Enlist Duo™ herbicide, which will be a highly differentiated herbicide solution for its Enlist™ Weed Control System. Once all regulatory approvals are secured, Enlist will introduce an innovative combination of herbicides and herbicide-tolerant traits in elite germplasm to meet the emerging weed control challenges facing farmers, while sustaining beneficial farming practices.
The new 2,4-D choline is a quaternary ammonium salt, which is different from 2,4-D amine or ester formulations. This technology retains the positive attributes of traditional 2,4-D products, such as the same weed control efficacy and favorable environmental profile, while providing growers new advantages for the management of resistant and hard-to-control weeds.
Hess recently announced they will proceed with the development of Tubular Bells, a deep-water oil and gas project operated by Hess in the Gulf of Mexico.
Discovered in 2003, Tubular Bells is located approximately 135 miles southeast of New Orleans in the Mississippi Canyon area. The field lies in water depths ranging from 4,300 to 4,600 feet. The plan initially calls for three subsea production wells and two water injection wells from two subsea drill centers tied back to a third-party owned spar production facility, the first of its kind to be constructed entirely in the United States. Drilling is scheduled to begin in 2012 and initial production is expected in 2014, subject to the receipt of necessary government permits.
Annual gross production is expected to peak in the range of 40,000-45,000 barrels of oil equivalent per day. Total estimated recoverable resources for Tubular Bells are estimated at more than 120 million barrels of oil equivalent. The development is estimated to cost $2.3 billion, with additional commitments for production handling, export pipeline, and oil and gas gathering and processing services. Following BOEM approval of the recent assignment of BP's interest, Hess will hold a 57.14 percent interest in the field, and Chevron U.S.A. Inc. (CVX) will hold the remaining 42.86 percent interest.
Cliffs Natural Resources Inc.
Looking ahead, Cliffs anticipates stagnant to only modest growth in the U.S. economy. However, the company indicated that the current level of U.S. economic growth should sustain a healthy U.S. business for Cliffs. In Asia, historically high year-over-year crude steel production and iron ore imports continue to support demand for Cliffs' products across the company's iron ore segments exposed to the seaborne market.
For 2011, the company is modestly decreasing its expected sales volume in U.S. iron ore to approximately 24 million tons from its previous expectation of 25 million tons, driven by vessel availability and adjustments in customer pellet requirements.
U.S. iron ore revenue per ton is expected to be approximately $135 - $140, up from the previous expectation of $130 - $135, based on the following assumptions:
- A Platts 62% iron ore spot price of $140 per ton (C.F.R. China) is maintained for the remainder of 2011;
- 2011 U.S. blast furnace utilization of approximately 70%;
- 2011 average hot rolled steel pricing of $700 - $750 per ton; and
- An approximately $5 per ton increase related to fully consolidating Empire Mine.
In addition, the revenue-per-ton expectation also considers various contract provisions, lag-year adjustments and pricing caps and floors contained in certain supply agreements. Actual realized revenue per ton for the full year will depend on iron ore price changes, customer mix, production input costs and/or steel prices (all factors contained in certain of Cliffs' supply agreements).
Cliffs is increasing its U.S. iron ore 2011 production volume to approximately 24 million tons. The company is also increasing its cash cost per ton expectation to approximately $60 - $65, up from its previous expectation of $55 - $60. Both increases are related to fully consolidating the Empire Mine. For 2011, depreciation, depletion and amortization is expected to be approximately $4 per ton.
In 2012, Cliffs expects to produce and sell approximately 23 million tons from its U.S. iron ore business. This sales volume expectation assumes a 70% - 75% blast furnace utilization rate in 2012.
Taking these factors into account, I posit these equities will soon soar from their current shares prices based on macroeconomic, sector and company specific catalysts. These stocks have great stories and positive facilitators for future growth. However, many are trading at significant discounts.
Nevertheless, I suggest layering into these names as there may be a significant buying opportunity at the end of this week produced by the bumbling EU bureaucrats as they haggle over the final solution of their sovereign debt debacle as well as possibly one more reporting period with disappointing earnings for some names.