Seeking Alpha

Non-Random Walk's  Instablog

Non-Random Walk
Send Message
I am a former Systems Engineer turned Trader and Blogger.
My blog:
Non Random Walk
  • Cliff's Natural Resources (CLF) Versus Freeport-McMoran (FCX), What Basic Material Stock To Buy? 0 comments
    May 13, 2013 3:55 AM

    (click to enlarge)Quarte-on-quarter plot of EPS and Revenue growth from qoqcharts.com

    (click to enlarge)quarter-on-quarter eps and revenue growth chart over stock price

    It has been a rough 6 months or so for companies that pull minerals out of the ground. Both FCX and CLF are in the materials sector, though they sell different materials. CLF, in particular, has been very volatile since it's recent bottom at $17. In fact, both stocks have moved strongly up after recent ugly bottoms due to a macro sector rotation and the general realization that the companies still make a little money after recent quarterly results.

    Cliff's is a North American producer of iron ore and metallurgical coal, while FCX is more global, producing and exporting all kinds of minerals from all over the world. Cliff's is tied to North American and Chinese consumption. Both companies sport healthy dividends (3.8% for FCX and 2.5% for CLF). As always with dividends, there are questions about whether the current yield can be maintained.

    Growth is what drives stock prices higher over the longer term (real and projected). I like to look at the following included charts, which combine fundamentals (quarter-on-quarter growth in EPS and Revenue) plotted along with the technicals and price action to get a sense of where these companies have come from and where they are going.

    Note that these charts depict quarter-on-quarter growth, not quarter-over-quarter. Quarter-on-quarter (QoQ) compares the quarterly results from one year to the same quarter of the previous year. If you like these charts, you can get them for many stocks at qoqcharts.com.

    Both companies have experienced declining EPS and Revenue growth over the past few years, though FCX did have a positive (growth) quarter recently. Looking purely at the growth trends of the companies in these charts, FCX is the better buy. It's recent declining growth has been reversing and revenue growth is projected to turn positive next quarter. That is not the case for CLF, which has had an ugly growth trend, as the charts show. However, there does appear to be some stabilization.

    However, you can't just consider the growth trend absent of price. Cliff's stock price has been obliterated - in 2011 it traded at $100 and it recently put in a bottom of $17. That is a decline of 83% by my count. FCX has also been hurt, but not nearly as badly, being roughly halved from its 2011 highs. From a price point of view, CLF has the higher reward potential over the long run, as well as the higher risk.

    In my view FCX is the safer play over the next few months, but CLF has an enticing risk/reward potential. It's growth trend is in the right direction. It is not over-valued, and recent price action hasn't overdone the more optimistic growth picture, though if I were to enter the stock, I'd try to get in below $32. With CLF, you have a stock where any positive change in the fundamentals at all and the stock could skyrocket due to improving growth and a stock chart that has no where to go but up. Imagine, for a second, if revenue growth turned positive for CLF two quarters out, which is likely according to some analysts. However, the recent spike (and volatility) in the price of CLF would have me wary. I'd wait for a pull back to $20 or so which is very possible with the kind of recent volatility in the stock.

    Yahoo Finance and qoqcharts.com is my source for much of this data.

    Disclosure: I am long CLF.

Back To Non-Random Walk's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.