Despite a pretty good year for commodity prices, especially oil and gold, it was not a good year at all for myriad commodity producing stocks. Concerns about slowing worldwide growth, higher operating costs and the crisis in Europe have brought many of these stocks down substantially. The following are four such stocks that could rebound significantly in 2012.
Freeport-McMoran (FCX) –
Freeport-McMoRan Copper & Gold Inc. engages in the exploration, mining, and production of mineral resources. The company primarily explores for copper, gold, molybdenum, silver, and cobalt. It holds interests in various properties, located in North and South America; the Grasberg minerals district in Indonesia; and the Tenke Fungurume minerals district in the Democratic Republic of Congo.
(Business description from Yahoo Finance)
Current Forward P/E: 8.1
5 Year Average Forward P/E: 13.1
Performance versus S&P YTD: -36.57%
EPS Trend line 2010: $4.64 2011: $4.89 2012: $4.71
Current Price: $38.82
Consensus Analysts’ Price Target: $54
Dividend Yield: 2.6%
Key value observations on FCX:
· Freeport is selling in the bottom third of its five year valuation range based on P/E, P/S, P/B and P/CF.
· FCX yields a respectable 2.6% and has raised its dividend an average of 11% annually over the past five years.
· Freeport is too cheap at less than 5 times operating cash flow and long term secular demand coming from the emerging markets, especially China.
Hess Corporation (HES) –
Hess Corporation and its subsidiaries operate as an integrated energy company. It operates in two segments, Exploration and Production (E&P) and Marketing and Refining (M&R).
(Business description from Yahoo Finance)
Current Forward P/E: 8.2
5 Year Average Forward P/E: 17.4
Performance versus S&P YTD: -26.03%
EPS Trend line 2010: $5.15 2011: $6.25 2012: $6.97
Current Price: $56.96
Consensus Analysts’ Price Target: $80
Dividend Yield: .7%
Key value observations on HES:
· Earnings estimates for 2011 and 2012 have crept up over the last thirty days.
· Hess is selling at the bottom of its five year valuation range based on P/S, P/B and P/CF.
· An insider bought $10mm in new shares in September at current price levels.
Peabody Energy (BTU) –
Peabody Energy Corporation, through its subsidiaries, engages in the exploration, mining, and production of coal. The company mines and sells thermal coal to electric utilities and metallurgical coal to industrial customers. It owns interests in 28 coal operations located in the United States and Australia, as well as owns joint venture interests in a Venezuelan mine.
(Business description from Yahoo Finance)
Current Forward P/E: 6.7
5 Year Average Forward P/E: 15.1
Performance versus S&P YTD: -46.82%
EPS Trend line 2010: $3.05 2011: $3.99 2012: $5.14
Current Price: $34.23
Consensus Analysts’ Price Target: $60
Dividend Yield: 1%
Key value observations on BTU:
· Peabody is selling at the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF.
· Peabody’s Australian coal assets are underappreciated by the market. Peabody also is Credit Suisse’s top pick in the coal sector with a $55 price target.
· BTU has a minuscule five year PEG of .28 and is selling for less than 7 times operating cash flow.
Alcoa (AA) –
Alcoa, Inc. engages in the production and management of aluminum, fabricated aluminum, and alumina. The company operates in four segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions.
(Business description from Yahoo Finance)
Current Forward P/E: 9.5
5 Year Average Forward P/E: 15.3
Performance versus S&P YTD: -42.78%
EPS Trend line 2010: $.50 2011: $.80 2012: $.93
Current Price: $8.86
Consensus Analysts’ Price Target: $12.25
Dividend Yield: 1.4%
Key value observations on Alcoa:
· Alcoa is selling at the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF.
· AA has a five year projected PEG of less than .4.
· Alcoa is too cheap at less than 4 times operating cash flow and 40% of annual revenue.
