NEW YORK ( Karvy Global) -- Base metals are trading higher on the Federal Reserve's decision to expand its asset purchases to boost the economy.

A declining dollar index likely will increase investment demand for metals, especially precious metals.

Additionally, narrowing inventory levels will continue to support higher metals prices. The copper inventory on the London Metal Exchange has hit 52-week lows at 350,250 tonnes, and the metal has risen to 31-month highs.

Demand for copper will outstrip supply by 367,500 tonnes by 2011, according to median estimates of 12 analysts polled by Bloomberg, while the International Copper Study Group estimates a deficit of 435,000 tonnes during 2011.

Meanwhile, aluminum producers may have to boost output by almost two-thirds to meet 5.3% demand growth over the next decade, Bloomberg reports, citing a statement by Rio Tinto ( RIO). In addition, the launch of new commodity ETFs will continue to boost metals stock prices.

Given these fundamentals, metals stocks likely will continue to outperform broader markets in December. During November, the S&P 500 Index gained 3.7%, while the SPDR S&P Metals and Mining ETF ( XME) surged 9.1%.

The following 10 stocks have high betas. In other words, they are more volatile than the stock market. That means they likely will outperform their peers in a rally. The stocks are listed from lowest beta value to highest.

The 6-month charts on the following pages show the performance of each stock, along with the performance of the S&P 500, which is identified by the abbreviation INX.

No. 10: AK Steel

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AK Steel ( AKS) is a producer of flat-rolled carbon, stainless and electrical steels, primarily for the automotive, appliance, construction, and electrical power generation and distribution markets.

High steel prices are necessary for AK Steel to be able to maintain its profit margins, as the company is not integrated for iron ore and coking coal supplies. Last week, the company announced price increases for carbon steel products on increased demand and higher raw material prices. Domestic steel prices will have to rise further to offset anticipated increases in raw material costs, which have been generating volatility in the stock, giving it a high beta value.

Another reason for the high beta value is that the company's dividend yield of 1.42% is lower than Nucor's ( NUE) 3.70%, Worthington Industries' ( WOR) 2.81%, and Steel Dynamics' ( STLD) 2.13%. Even though U.S. Steel ( X) has a lower dividend yield -- 0.46% -- its stock has a lower beta because of the company's integrated character. Being a nonintegrated steel maker, AK Steel is a more volatile stock subject to the impact of raw material prices.

AK Steel is expected to lose 64 cents a share during 2010, and report earnings of 42 cents a share in 2011, in comparison with a loss of 68 cents a share in 2009, according to analysts polled by Bloomberg. Over the past year, the stock declined around 26%, while its peers gained around 32%, underscoring the impact of increasing raw material costs.

Of the 13 analysts covering the stock, two recommend buying it, 10 advise holding it and one advises selling it.

No. 9: Haynes International

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Haynes International ( HAYN) is a producer of nickel- and cobalt-based alloys in sheet, coil and plate forms.

The stock's price movement depends on the end market rather than the movement in metal prices. Demand from the aerospace, defense, and industrial markets is pivotal to revenue generation.

The stock likely will provide attractive returns to investors on an improving backlog, robust margins, and strong capital and operational efficiency. During the third quarter, utilization rates jumped by 10% quarter over quarter, while the backlog grew 6%.

Analysts polled by Bloomberg expect the company to report earnings of $1.09 a share for 2010 and $2.33 a share for 2011, a significant turnaround from the loss of $3.09 a share registered in 2009.

Over the past year, the stock advanced about 55%, while its peers gained only 33%. Of the seven analysts covering the stock, four recommend buying it and three advise holding it.

No. 8: Horsehead Holding

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Horsehead Holding ( ZINC), a stock with upside, is the largest zinc producer in the U.S. and a leading manufacturer of value-added zinc products.

Horsehead's acquisition of metal-waste recycler INMETCO has added to Horsehead's revenue stability.

Analysts polled by Bloomberg estimate the company will report earnings of 30 cents a share for 2010 and 91 cents a share for 2011, a significant turnaround from a loss of 73 cents a share in 2009.

The stock has surged 63% after testing lows on Aug. 24. Of the six analysts covering the stock, three recommend buying it, two advise holding it and one recommends selling it.

No. 7: Alumina

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Alumina ( AWC), an Australia-based company, is engaged in investing in bauxite mining, alumina refining, and select aluminum smelting operations through a 40% ownership in Alcoa ( AA) World Alumina & Chemicals.

Year to date, Alumina surged around 27.8%, ahead of a 21.1% gain in Kaiser Aluminum ( KALU). Over the same period, Alcoa, Aluminum Corp of China ( ACH), and Century Aluminum ( CENX) declined 12.3%, 15.9%, and 8.1%, respectively.

Of the 16 analysts covering the stock, seven recommend buying it, eight advise holding it and one rates it a sell.

No. 6: Mechel

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Mechel ( MTL) is an integrated mining, steel, ferroalloys, and power utility based in Russia. The company unites producers of coal, iron ore concentrate, nickel, steel, ferrochrome, ferrosilicon, rolled products, hardware, heat and electric power.

The stock led the pack of major steel producers with a year-to-date gain of 42.5%, ahead of Worthington's 33.5%, Schnitzer Steel's ( SCHN) 26.0%, and Ternium's ( TX) 6.3% gains.

Mechel recently signed an agreement with South Korea-based Posco ( PKX) for collaborating on a mutually beneficial strategic partnership for promoting the products produced by Mechel's affiliates and Posco.

Analysts polled by Bloomberg expect Mechel's earnings to reach $2.23 a share for 2010 and $4.03 a share for 2011, a remarkable increase from the 18 cents a share reported for 2009. Of the eight analysts covering the stock, six recommend buying it and two recommend selling it.

No. 5: Teck Resources

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Teck Resources ( TCK), a stock cherished by analysts, is an integrated natural resources company engaged in mining, smelting and refining. The company mines copper, zinc, molybdenum, gold, and metallurgical coal in the U.S., Canada, Peru and Chile.

Teck Resources plans to increase copper production by 40% from 2009 to 2013 and triple production over the next decade or so. While long-term projects likely will be expensive and complicated, CEO Don Lindsay said Teck could self-fund the projects and meet other cash commitments even while discounting current commodities prices, according to a JPMorgan report. In addition, exposure to high-growth emerging markets through copper, coal and zinc exports likely will benefit Teck in the long run.

Over the past month, the stock has jumped 14.4% on rising copper and metallurgical coal prices. An increase of $10 per tonne in Teck's realized price will increase the company's earnings per share by 25 cents, according to analysts at Desjardins Securities. Of the 18 analysts covering the stock, 15 recommend buying it, three rate it a hold and one advises selling it.

The stock surged 69% during the past year, in comparison with Freeport-McMoRan Copper & Gold's ( FCX) gain of 38.6% and Southern Copper's ( SCCO) increase of 39.3%. During the same period, mining giants Rio Tinto, BHP Billiton ( BHP) and Vale ( VALE) gained 35.4%, 19.4% and 19.9%, respectively.

No. 4: Cliffs Natural Resources

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Cliffs Natural Resources ( CLF) , a stock selling at a deep discount and listed among the top 10 mining stocks with upside, is the largest producer of iron ore pellets in North America.

Going forward, Cliffs will likely benefit from higher iron ore prices and its long-term contracts with major steel producers such as ArcelorMittal ( MT). For the 2010 third quarter, Cliffs reported earnings of $2.18 per share, up from 45 cents a share in the year-ago period. Cliffs' earnings are estimated at $6.92 a share for 2010 and $9.24 a share for 2011, a remarkable improvement from the $1.63 a share reported for 2009.

Despite a 60.2% gain, after the recent lows tested on July 6, the stock is trading at an attractive forward price-to-earnings multiple of 7.4. Over the past year, the stock has surged 76%, while peers have returned only 31%. Of the 12 analysts covering the stock, nine have buy ratings and three have hold ratings.

No. 3: Allegheny Technologies

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Allegheny Technologies ( ATI) is one of the largest and most diversified specialty metals producers serving major markets such as aerospace, defense, and the chemical process and oil and gas industries. The company has a diversified product mix comprising of titanium and titanium alloys, nickel-based alloys and super alloys, stainless and specialty steels, zirconium, hafnium, and niobium, advanced powder metals, tungsten materials, grain-oriented electrical steel, and forgings and castings.

For the third quarter, the company reported a 52% year-over-year surge in sales to $1.06 billion. Sales during the first nine months were just $45 million below the total sales for full year 2009. "We continue to see 2010 as the transition year to the resumption of strong secular growth in our key global markets," said L. Patrick Hassey, chairman and CEO.

The company's recent acquisition of Ladish likely will boost earnings for 2011 on expanding end-market potential and cost synergies. Analysts polled by Bloomberg estimate earnings of $2.73 a share for 2011, up from 32 cents a share reported for 2009 and an estimated 91 cents a share for 2010.

Over the past year, Allegheny has surged around 54.2%, while its peers have gained only 30.1%. Of the 11 analysts covering the stock, seven have buy recommendations, two have hold recommendations and two have sell recommendations.

No. 2: Stillwater Mining

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Stillwater Mining ( SWC) is engaged in the development, extraction, processing, refining and marketing of platinum group metals (PGMs).

The stock likely will see upside on the growing deficit for PGMs. The company has been investing in new projects such the Graham Creek Project at its East Boulder mine and the Blitz project at its Stillwater mine to leverage the anticipated uptrend in palladium and platinum prices.

Year to date, the stock has zoomed 101%, in comparison with a 73.7% jump in North American Palladium ( PAL) and a 0.5% gain in Platinum Group Metals ( PLG).

Analysts foresee the company reporting earnings of 61 cents a share for 2010 and $1.78 a share for 2011, a turnaround from a loss of 10 cents a share for 2009. Of the nine analysts covering the stock, eight have buy recommendations on it and one rates it a hold.

No. 1 : Metalico

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Metalico ( MEA) , a stock with potential upside, is a ferrous and nonferrous scrap metal processor and the largest fabricator of lead-based products.

During the third-quarter earnings release, President and CEO Carlos E. Agueero said: "Although our average scrap metal selling prices fell for most categories other than non-ferrous products, our operations produced quarterly and year-to-date EBITDA margins of 10.1%, meeting our internal target of 10%. We remain focused on margin generation and expanding the business while meeting or exceeding performance goals. From a macro perspective, we remain bullish on commodity markets for both base metal and precious metal prices in the fourth quarter and into 2011."

Earnings are estimated to increase to 36 cents a share in 2010 and 46 cents a share in 2011, a turnaround from the loss of 8 cents a share reported for 2009, according to analysts polled by Bloomberg.

Despite a 14.8% gain over the past month, the stock is trading at an attractive forward price-to-earnings ratio of 10.5. Of the four analysts covering the stock, three rate it a buy and one rates it a sell.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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