4 Buy Ideas From Top-Performing Commodity Stocks Of 2012

 |  Includes: AA, AGU, CF, FCX, LYB, PBR, RIG, RIO, SLW, VEDL
by: The Analyst Hub

The following is a list of top commodity stocks which have significantly outperformed the broader markets year-to-date in 2012. As compared to S&P500's gain of 4.67% since the start of this year, these stocks have posted gains of at least 20% so far in 2012.




% Change in Stock Price YTD


Alcoa, Inc.




Agrium Inc.

Agricultural Chemicals



CF Industries Holdings, Inc.

Agricultural Chemicals



Freeport-McMoRan Copper & Gold Inc.




LyondellBasell Industries NV

Specialty Chemicals



Petroleo Brasileiro

Oil & Gas Drilling & Exploration



Transocean Ltd.

Oil & Gas Drilling & Exploration



Rio Tinto plc

Industrial Metals & Minerals



Sterlite Industries (India) Ltd.




Silver Wheaton Corp.



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I see further upside potential in Freeport-McMoRan Copper, Agrium, CF Industries and LyondellBasell Industries NV.

Freeport-McMoRan Copper & Gold Inc. 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 minerals district in the Democratic Republic of Congo. FCX is likely to see a high top-line growth for next several years.

It has potential to grow copper and gold volumes by 35% and 50%, respectively by 2016. In the near term continued strength in underlying copper prices are likely to provide upside catalysts for the stock prices. At 8.40x forward PE stock doesn't look pricey and I recommend buying the stock given its long-term company-specific growth and near term upside from its copper exposure for which the market still remains tight.

I am bullish on CF and Agrium given the strong crop prices and healthy farmers' balance sheets. The upcoming spring planting season would provide a near term catalysts for these stock. In addition, hot, dry weather in South America (which accounts for 10% of global corn production) has adversely affected the corn production and hence corn prices could see some upside in the near term, providing another catalyst for the fertilizer stocks.

Among fertilizer stocks, CF is my best bet. As the largest North American producer of Nitrogen fertilizers, CF is well positioned to take advantage of inexpensive US natural gas versus its global peers. Also, demand for nitrogen-based fertilizers is less elastic as compared to potash or phosphate, giving more visibility to CF versus other fertilizer companies.

LyondellBasell Industries NV is a Netherlands-based company engaged in the chemical industry. The company's products are divided into four sections: Olefins and Polyefins, Intermediates and Derivatives, Refining and Oxyfuels and Technology. It produces polypropylene and polypropylene compounds, propylene oxide, polyethylene, ethylene and propylene. It is also a producer of refined products, including biofuels.

LyondellBasell Industries is well positioned to benefit from inexpensive, natural gas-linked ethane feedstock, greater feedstock flexibility, and operational improvements. Trading at ~6x 2013E EBITDA with over 10% FCF yield, the stock provides an attractive risk-reward. Another interesting thing to note is that the company is trading below its replacement cost, despite many companies actively considering large-scale Greenfield projects that would take many years to complete.

Lyondell paid a special dividend of $4.50 per share to shareholders on 25 November 2011. In addition to the special dividend, Lyondell's board authorized an increase in the company's quarterly dividend payout from $0.20 to $0.25, which means ~ 2.5% yield at current price. I recommend buying the stock given its sustainable free cash flow yield above 10%, an unleveraged balance sheet and key competitive advantages stemming from an advantaged raw material position in North America.

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