Southern Copper has logged consistently stellar earnings growth, and the stock has strong momentum.
Alcoa earns high-fives from two guru strategies despite its disappointing earnings.
Phelps Dodge may be worth a look.
Commodity prices have been up in the past year or two. And up. And up even more. Recently, copper was trading at about $3.50 a pound, more than double a year ago. Three years ago, copper was trading at less than a quarter of current prices. With many costs fixed, much of every penny of price increase goes to the bottom line for copper producers.
Countries like India and China have ramped up their manufacturing and demand for commodities in recent years, while the U.S. and other major economic powers have seen fairly strong economies and strong demand. With supply not very flexible, the imbalance with demand has led to a run-up in prices.
I've subjected several of the largest mining companies to analysis by my investment strategies. Not surprisingly, many were found wanting, often because their share prices have gotten too high to be worth buying. However, a couple came out smelling like roses.
The major Latin American producer Southern Copper (PCU - commentary - Cramer's Take) scores well with my strategy based on the investing style of William O'Neil. It has logged very strong annual earnings growth of 52.28% over the past five years, and earnings have increased in four out of the last five years, demonstrating consistent growth.
The stock is within 4% of its 52-week high, which is a major plus for the O'Neil strategy because it screens for stocks with momentum behind them. Whereas other stock strategies look for low prices, the O'Neil strategy looks for high prices, providing the high price is justified by the company's performance, which in Southern Copper's case is true. Southern Copper's weighted relative strength (its price performance compared with the overall market over the past year) is an exceptional 92. Southern Copper also has hardly any debt and its return on equity is a stunning 53.6%. This is a company worth digging into your wallet to buy.
Metals Shades of Tech Circa 2000 in Gold 9/21/2006 1:02 PM EDT There's an astonishing similarity between the Nasdaq's bust and recent action in the precious metal.
Manufacturing Atticus Shopping Phelps 10/11/2006 2:50 PM EDT The copper miner's biggest holder is agitating again.
Metals Solid Nuggets and Fool's Gold 9/28/2006 11:00 AM EDT Which gold stocks are going up and which are unlikely to pan out.
At the time of publication, Reese and his clients were long Southern Copper, Alcoa and Freeport-McMoran, although holdings can change at any time.
Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.
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