When Federal Reserve Chairman Ben Bernanke announced today that there would be no more quantitative easing for the time being, (although the US economy is still in a very fragile state) both Gold (GLD) and Gold Miners (GDX) were trading up quite nicely on the news.
Why were they up? The natural resources sector, and more specifically the gold sector, would continue to benefit if the Fed moves away from implementing a third round of Quantitative Easing, because it could equate into higher profits for many of the companies within the natural resources industry. With that said, there were two upgrades in the natural resources sector that growth investors should consider in the event they prefer individual stocks over ETFs.
Thompson Creek Metals Company, Inc. (TC), which closed trading on Thursday at $2.51/share, was upgraded by Dahlman Rose from an Underperform rating to a Buy rating and set a $4.00/share price target. The Denver, Colorado-based firm engages in mining, milling, processing, and marketing of molybdenum products in the United States and Canada. Its principal properties include the Thompson Creek Mine, an open-pit molybdenum mine and concentrator located in Idaho; the Endako Mine, an open-pit molybdenum mine, concentrator, and roaster in British Columbia; and the Langeloth metallurgical facility in Pennsylvania.
When it comes to Thompson Metals, there are two things potential investors should consider from a fundamental perspective. The first thing, in my opinion, long-term investors looking to establish a position in TC should consider is the company's profit margin over the last 12 months, and how TC is able to outpace some of the competition within the metals and mining sector. Over the last 12 months, TC has demonstrated a profit margin of 6.56% whereas direct competitor Molycorp, Inc. (MCP) has only managed to demonstrate a profit margin of 0.19%.
The second thing to consider in terms TC is the percentage of shares held by insiders and how those percentages compare with some of the company's industry-based competitors. At Thompson Creek Metals, insiders currently hold about 8.80% of the total number of shares outstanding, and in the last 6 months, they have engaged in the purchase of roughly 98,900 shares. When multiple insiders purchase shares over of a period of time, those transactions demonstrate a confidence these insiders have in the long term growth of the company. One thing potential investors should note is the fact that insiders at TC have a much stronger position in their own company than the insiders at Freeport-McMoRan (FCX) who only hold 0.82% of the total shares outstanding.
Minerals Technologies, Inc. (MTX), which closed trading on Thursday at $67.37/share, was upgraded earlier in the week by First Analysis from an Equal Weight rating to an Over Weight rating. The New York, New York-based firm is a resource and technology based company, produces and markets a range of specialty mineral, mineral-based, and synthetic mineral products; and supporting systems and services worldwide. It operates in two segments, Specialty Minerals and Refractories.
In terms of MTX, there are two variables potential investors should consider before establishing a position. I think the most important of these catalysts is going to be the company's profit margin, and how it outpaces some of the competition within the metals and mining sector. Over the last 12 months, MTX has demonstrated a profit margin of 7.13% whereas direct competitor Martin Marietta Materials, Inc. (MLM) has only managed to demonstrate a profit margin of 3.22%. With a profit margin nearly 2.2 times that of MLM's, MTX clearly outpaces MLM.
The second variable potential investors looking to establish a position in MTX should consider is the percentage of shares held by insiders which currently stands at 11.02%. As previously stated, when insiders hold a large percentage of the outstanding shares, it symbolizes a long-term confidence in the growth of the company. If we look at Georgia Gulf Corp. (GGC), we'll notice that insiders only hold 1.81% of the total number of shares outstanding, which to me symbolizes a lesser confidence in the company than the insiders have at MTX.
Potential investors looking to establish a position in either TC or MTX should do so with a small to moderate position and gradually add to that position as both companies look to grow as a result of their mining operations. Two of the ancillary catalysts potential investors should also consider are the margins and continued insider transactions at both firms. If both companies can continue to grow at a steady pace I see no reason as to why they can't be trading 5%-7% higher than current levels.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.