Legendary Funds Buying Freeport McMoRan And Vale, Selling These 3 Other Metals Mining Stocks

Includes: AA, CLF, FCX, RIO, VALE
by: GuruFundPicks

Metals Miners as represented by the SPDR S&P Metals and Mining ETF (NYSEARCA:XME) are down about 7% for the year, after giving back gains from a new year's rally in January that carried the average stock in the group up 16% in the first five weeks of the year. In this article, via an analysis based on the latest available institutional 13-F filings, we identify metals mining company stocks that are being accumulated and those being distributed by legendary or guru fund managers. The legendary or guru fund managers included, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, are well-known for their savvy in picking winning stocks year after year. Taken together, these guru fund managers are bearish on the group, cutting a net $75 million in Q4 from their $1.65 billion prior quarter holdings in the group (for more general information on these guru funds, please look at the end of the article).

The following are two of the metals mining companies that these guru fund managers are most bullish about (see Table for more companies they added):

Vale SA (NYSE:VALE): Rio De Janeiro, Brazil-based VALE is one of the world's leading mining companies, and specializes in the mining of iron ore and pellets, manganese, alloys, gold, copper, potassium, and kaolin. A total of seven guru funds hold 0.5% of the outstanding shares, with four funds buying and three selling during the quarter. Also, together guru funds added a net $35 million in Q4 to their $319 million prior quarter position in the company. The top buyers were San Francisco, CA-based mutual fund company RS Investment Management ($30 million) and hedge fund Oaktree Capital Management ($15 million), and the top holders were billionaire and investment legend Ken Fisher's Fisher Asset Management, managing $37 billion in 13-F assets ($242 million) and RS Investment Management ($71 million). Fisher Asset Management has since filed its Q1 2012, summarized by us in a prior article, in which it added a further 9.6 million shares in VALE to its 11.6 million share position at the end of Q4.

VALE reported its Q1 (March) the week before last, on Thursday, with revenues in-line and earnings missing analyst estimates by a penny (74c v/s 75c), but both well below last year's Q1 results, at 21% and 46% lower respectively. The shares trade at 5-6 forward P/E and 1.4 P/B compared to averages of 20.9 and 2.2 for its peers in the miscellaneous mining group, while earnings are projected to fall from $4.23 in 2011 to $3.69 in 2013. Also, VALE has a higher dividend yield of 5.3% compared to the 2.0% average for its peers.

The P/E contraction in VALE's shares is based mostly on the assumption that Chinese growth and the demand for iron ore will flatten after its earlier torrid growth, when it quintupled between 2000 and 2012. But it is likely that Chinese growth may continue unabated, albeit at high single-digit rates, that world demand may pick up some of that slack, that pricing remains strong, and that profits get a boost from lower costs tied to VALE's use of its very large ore carrier ships.

Freeport McMoRan Copper & Gold (NYSE:FCX): FCX is engaged in the exploration and development of copper, gold, silver and molybdenum mines in Indonesia, North and South America. A total of thirteen guru funds hold 1.3% of the outstanding shares, well above the 0.7% average for the group, with seven funds buying and seven selling during the quarter. Also, together guru funds added a net $1 million in Q4 to their $423 million prior quarter position in the company, buying $122 million and selling $121 million worth during Q4. The top buyer was billionaire star fund manager Stephen Cohen's hedge fund SAC Capital Advisors ($86 million), and the top holders were Fisher Asset Management ($327 million) and SAC Capital Advisors ($99 million).

FCX reported its Q1 (March) three weeks ago, beating analyst revenue and earnings estimates (96c v/s 85c). The stock is down slightly, about 6% YTD, and at $35 it trades well below recent highs early last year in the $60 range. Its shares currently trade at 6-7 forward P/E and 2.1 P/B compared with averages of 19.5 and 2.3 for its peers in the non-ferrous mining group, and compared with averages of 10.1 and 3.6 for its peers in the gold mining group, while earnings are projected to rise at a modest 3.4% annual rate from $4.89 in 2011 to $5.23 in 2013.

The stock is a favorite pick among Wall Street analysts, with 20 of 23 analysts that cover the stock rating it at buy/strong buy, with the remaining three rating it a hold; with a mean price target of $53, well above current prices near $35. Specifically, Barclays put a price target of $63 on the stock, and recently called the company the most unappreciated growth story in the entire US metals and mining group.

Besides these, guru fund managers based on their Q4 trading activity indicated that they are bearish on the following metals mining companies (see Table):

  • Rio Tinto Plc (NYSE:RIO), a U.K.-based company with global interests in mining that is engaged in mining for aluminum, borax, copper, gold, iron ore, lead, silver, tin, zinc, uranium, titanium, diamonds, talc and zircon, in which guru funds together cut a net $49 million in Q4 from their $356 million prior quarter position, with five gurus selling and none buying during the quarter;
  • Alcoa Inc. (NYSE:AA), that is engaged in the production and management of aluminum, fabricated aluminum, and alumina, in which guru funds together cut a net $42 million in Q4 from their $101 million prior quarter position, with three gurus selling and two buying during the quarter; and
  • Cliffs Natural Resources (NYSE:CLF), that is a mining and natural resources company that produces iron ore pellets, lumps and fines iron ore, and metallurgical coal products, in which guru funds together cut a net $14 million in Q4 from their $113 million prior quarter position, with four gurus selling and one buying during the quarter.


General Methodology and Background Information: The latest available institutional 13-F filings of over 85+ legendary or guru hedge fund and mutual fund managers, such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, were analyzed to determine their capital allocation from among different industry groupings, and to determine their favorite picks and pans in each group. The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 85-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles that can be accessed from our author page

These legendary or guru fund managers number less than one percent of all funds and yet they control over ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.

This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.

Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

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