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  • These Stocks Are Surging, But Should You Buy? 0 comments
    Jul 25, 2013 8:47 AM | about stocks: OXF, URG, WFC

    Basic material stocks, especially the ones with even a remote connection to mining, have lost the confidence of investors. However, a late rally seems to be underway in stocks such as Ur-Energy Inc. (NYSE: URG) and Oxford Resource Partners (NYSE: OXF). While the rally has taken these beaten down stocks to high levels, it may not be time yet to dabble in these.

    Colorado based uranium mining junior Ur-Energy Inc jumped 23 percent over the last month. In fact the stock scaled a new 52-week high of $1.35 on the back of positive developments. Still, the stock is nowhere close to the high scaled in 2010. The latest jump, however, is reassuring as it comes on the back of fundamentally positive developments. Against all the gloom and doom for uranium as an energy source, Ur-Energy recently signed a long term supply contract with a U.S. based nuclear operating company. The contract calls for supply of 200,000 to 300,000 pounds of uranium concentrate each year starting from 2017. The company has no revenues so far and it recorded a loss of $3 million in the most recent quarter. This is about to change with the latest supply agreement. Although pricing of the deal was not disclosed, the company said it is consistent with current long term prices for U308. Going by the average spot price, the deal promises sales of $8 million to $12 million every year which is not bad for a company that is just starting on its first uranium project. The company has no debt and its stock trades at a forward price earnings ratio of 10.4.

    Oxford Resource Partners is an Ohio based coal miner which primarily caters to utilities in Illinois, Indiana, Kentucky, Ohio, Pennsylvania, and West Virginia. The company has operations in Northern Appalachia and the Illinois Basin, but has been witnessing lower sales to coal fired power plants in line with market realities. In the most recent quarter, its sales dropped 10 percent to $88.7 million. Despite shrinking top line, the stock jumped recently following an upgrade to market perform by Wells Fargo (NYSE: WFC). This followed after the company announced successful refinancing of $175 million of new credit facilities. Both developments are extremely important for the company to navigate through the crisis. While the company has made some progress and could be great value buy, it is certainly not out of woods as a debt equity ratio in three digits indicates.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Themes: long-ideas Stocks: OXF, URG, WFC
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