Two Companies Poised To Ride the Palladium Rush (SWC, PAL)

Includes: PALDF, SBGL

Platinum gained 14% in 2005, and hit an all time peak of $1,049 on Tuesday. This gold rush has left some investors looking to Palladium as an alternative. Palladium, per Wikipedia, is "a soft steel-white metal that resembles platinum, doesn't tarnish in air, and is the least dense and has the lowest melting point of the platinum group metals." The main application today is in catalytic converters, but palladium is used as a more reasonable alternative to platinum in a variety of products including jewelry. According to Sify:

If developments in the automotive industry are any indication, demand for palladium would soon expand, with positive effect on prices...Given the possibility to substitute between the two metals to some extent and against the background of high platinum prices, the outlook for palladium demand is much better, said Macquarie Research, adding that where possible, platinum will be substituted with palladium in both three-way catalysts and diesel oxidation catalysts .

The Rude Awakening's Jeff Clark recommends looking to two North American mining companies as a proxy for palladium:

The price differential between the two has reached a record-wide spread. Consequently, it seems very likely that either the price of platinum will fall, or the price of palladium will rise. Or it might be that both metals will rally together, but that palladium will rally more. Whatever the case, the spread between the two seems likely to narrow, to the benefit of palladium.

One way to play this trend is to buy up a few scrapped cars, strip out the catalytic converters and extract the palladium. But maybe that's a little too creative. A better way to play the bull market in palladium (and in platinum) is to invest in one of the two North American companies engaged in mining for palladium: Stillwater Mining Company (SWC), and North American Palladium (PAL).

SWC 1-yr chart:

PAL 1-yr chart: