Top Underperforming Commodity Stocks Of 2011

by: Rash Menaria

The following is a list of top commodity stocks that have underperformed significantly in 2011.



Market Cap

YTD Price Change


Alcoa, Inc.




Arch Coal Inc.




Cameco Corp.




The Mosaic Company




Arcelor Mittal




Petroleo Brasileiro




Vale S.A.



Among above stocks, I believe Arcelor Mittal presents a good value buying opportunity. Arcelor Mittal is a global steel producer. Arcelor Mittal produces a range of finished and semi-finished products. Arcelor Mittal produces flat products, including sheet and plate, long products, including bars, rods and structural shapes, and stainless steel products. The company operates in five segments: Flat Carbon Americas; Flat Carbon Europe; Long Carbon Americas and Europe; Asia, Africa and Commonwealth of Independent States and Distribution Solutions.

Arcelor’s EPS forecast for the current year is 2.17 and next year is 2.35. According to the consensus estimates, its top line is expected to grow 20.50% in the current year. It is trading at a forward P/E of 7.81. Out of nine analysts covering the company, eight are positive and have buy recommendations and one has a hold rating. The median target price for the stock is $30.33 vs. the current market price of $18.35.

There are some near-term challenges for ArcelorMittal from the expected slowdown in European automotive production, a likely pause in re-stocking and the consequent risk of falling spot prices. However, the company is trading at a forward PE of just 7.81 and I believe at these valuations most of the negatives are already priced into the stock.

ArcelorMittal is a global leader in the steel industry, with a market share of ~9% and significant backward integration into iron ore and coking coal. The company is trading around its 2009 lows despite the fact that it has a stronger business model (more integration into raw materials than 2009 and better configuration of a plant) and a far better balance sheet, with lower duration risk on debt and less strict covenants. I believe ArcelorMittal is a good value buy at the current price for medium- to long-term duration.

One stock in the above list where I see further downside is Mosaic Co. I am concerned about a potential drop in potash volumes in the near term as Indian buyers try to reset potash contract prices because of weak local currency. The Indian rupee has declined ~20% vs. US dollar since August making imports to India costlier. So far major global potash producers have not agreed to the demand. This deadlock is likely to continue and it will lead to potential delays in contract renewals with China and India causing lower volumes. In addition, additional phosphate capacity in Saudi Arabia and Indian contract renegotiations are also likely to affect DAP prices negatively.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.