Seems like these natural resource plays really don’t care if we are in a bear market or not. As the China snow storms and South African mining problems have highlighted the precarious global supply issues with natural resources, I have been really intrigued with how strong some of these stocks have become fundamentally and technically in the so called bear market we are experiencing. These stocks are the ones to watch in the coming weeks as money looks around for a place to park.
GLD seems to be trying to test recent highs and possibly make new highs after recently pulling back. GLD strong support at $88.44 and minor resistance at $91.33. ABX is the world’s largest gold producer and seems to have found very strong support at $47.56. Minor resistance is at $50.7 and $53.32. Citigroup recently raised gold price forecasts for 2008-2010 and named ABX and NEM as their top picks. For 2008 they see $900 an ounce as a constant, $950 in 2009 and $1000 in 2010 while raising ABX estimates to reflect the new forecasts. On Jan. 22nd, Credit Suisse expects gold prices to continue to move higher and for ABX to benefit from an influx of new investors given the uncertain US economic environment. Target to $59 from $43. Credit Suisse raised its Gold price forecast for 2008 to $950/oz from $700/oz and for 2009 to $1,035/oz from $750/oz. Goldman was not as bullish raising its gold price forecast to $915/oz from $800/oz for 2008, $870/oz from $852/oz in 2009, and to $940/oz from $907/oz in 2010 on Jan 16th and recently removing ABX from their Conviction Buy List yet maintaining their Buy rating.
Traders on the floor expect big things for gold as whales have moved in.
Jonathan Jossen, independent COMEX floor trader in New York, said that gold was riding on a broad metals rally in spite of initial profit taking ahead of the weekend. On Friday, silver rose 2 percent while copper and palladium also surged almost 3 percent. “I just think gold is going to explode. There is big fund buying in all months in the futures market” including theDecember and June contracts, Jossen said.
Stillwater Mining Co.- SWC
Stillwater Mining Company engages in the development, extraction, processing, refining, and marketing of palladium, platinum, and associated metals in Montana, the United States. With South Africa’s electricity and mining problems while supplying the world with over 80% of the platinum supply and 35% of the palladium supply, it is expected to impact prices for years to come. The reason is because of the antiquated electrical grid in South Africa and booming economy contributing to the ongoing electrical power outages which in turn effect South African mines ability to produce these precious metals. Platinum and palladium could be a better choice of metal investment vehicles as their supply has been further hurt by global constraints and they are far more rare than their gold counterparts. Platinum and palladium also have industrial and commercial usages that gold doesn’t have, which only increases its demand.
Another Seeking Alpha writer has also found SWC very appealing and makes a compelling case. He says,
Stillwater Mine has a mine grade of as much as 0.55 ounces of PGM metals per ton of ores. That is the highest grade PGM mine in the world. But the SWC mine is mostly palladium, about 3/4 palladium and only 1/4 is the more expensive platinum. So for now it is not as profitable as the platinum mines in South Africa.
Another thing I like about SWC is its fairly small float at 91 million and large short ratio at 7.2 and almost 5 million shares short. This could create a short squeeze as the share price levitates and moves higher.
With revenues at $646 million [ttm] you can expect this to move higher in correlation to those higher commodity prices.
JP Morgan recently added SWC to its Focus List with a Overweight rating saying they expect the South African power shortages and declining Russian stockpile sales to result in higher palladium and platinum prices. Target $16. I do own calls on this name.
Compania de Minas Buenaventura SA- BVN
This top South American Peruvian miner engages in the exploration, mining, and processing of gold, silver, and various metals in Peru and internationally. It appears to be breaking out of a triple top technically and made new all time highs on Friday. This company also has a fairly small float compared to the appetite of worldwide demand for South American miners. BVN is not closely followed by the street and could be under the radar in terms of analyst exposure. They do have a history of missing street expectations regarding earnings. There has been 2 EPS upgrade revisions in the past 30 days. Current growth estimates look healthy for this quarter and next at 66% and 64% respectively. Recently BVN’s CFO released its hedges on gold prices saying, “This was to free ourselves from the fixed price of the contracts and get the spot price,” Carlos Galvez told Reuters.
Petroleum Development Corp. (PETD)
Petroleum Development Corporation engages in the development, production, and marketing of natural gas and oil in the United States. Right now this is my favorite energy play. It has only a 14 million share float with a short ratio of 7! and 1.2 million shares short as of Dec 26th. Technically it is breaking out with great volume. On Feb. 5th RBC initiated PETD with an Outperform and a $75 price target. RBC expects 40% organic production growth in 2008 from accelerated drilling and thinks there is more than 50% upside to proved reserves from low-risk drilling in the Rockies.
Arch Coal Inc. (ACI)
Arch Coal, Inc. engages in mining, processing, and marketing bituminous and sub-bituminous coal with low sulfur content in the United States. ACI is one of my favorite coal producers. ACI has broken out of its bull flag technical pattern and has minor support at $48.27. ACI is now trading at a new all time high. The fundamentals are there since oil prices are too high and coal is the alternative. China used to be coal exporter but now is a coal importer and will be as they build several new power coal plants. By the end of this year we could be asking for coal in our stockings. I was technically bearish on all the coal producers such as ANR (most overvalued coal), BTU, CNX, FCL, PCX, and FDG but when I dig into the fundamentals I see oil fundamentals. I’m not going to be stubborn about this even if the technicals keep telling me otherwise. A BIG investor sea change into coal producers could be occuring right now and I don’t argue with the market or trend.
The demands of emerging economies also likely will increase, and coal is expected to be the most rapid energy growth sector. Such big demand, and the fact that the coal index more than doubled last year, indicates that this ETF could be a money-making prospect. Keep an eye on the KOL ETF to witness changes or keep tabs of sector movements.
ACI recently on Feb 5th received a JP Morgan upgrade to Overweight from neutral as they cite higher coal prices for the upgrade.
ACI also got a backhanded compliment by being added to Friedman Billings Focus List on Feb 4th but downgraded to Market Perform saying they expect Powder River Basin prices will get pulled up by falling CAPP and slim spar productive capacity.
I like CNX due to technicals and option liquidity. It looks to break out of a triple top pattern as well but big volume is not there just yet and it appears to be forming a bullish ascending triangle pattern as well but wait for big volume for good confirmation of further upside with strong support at $73.11.
Cleveland-Cliffs Inc. (CLF)
Cleveland-Cliffs, Inc. engages in the production and sale of iron ore pellets to integrated steel companies in North America and Australia. The company also engages in the management and operation of six North American iron ore mines located in Michigan, Minnesota, and eastern Canada. CLF is making new all time highs here, breaking out on almost double the average volume. Chart pattern wise it is forming a cup and a handle with a wide base cup, it looks like a very healthy consolidation. CLF is the largest producer of iron ore pellets in North America. CLF has a small float of only 35 million with a short ratio of 4.6 and 4.5 million shares short which comprises 11.3% of the float. This could be one factor for the strong move up as a short squeeze is developing taking out short stops coinciding with strong mining sector sentiment. CLF has earnings on Feb. 22. JP Morgan came out with positive comments on CLF on Jan. 23rd. Zack’s on the other hand believes that product pricing and customer concentration keeps CLF as a hold.