10 Metal Stocks for 2011

NEW YORK ( TheStreet) - Goldcorp ( GG), Rio Tinto ( RIO), and Kinross Gold ( KGC) are among metals and mining stocks expected to have a greater upside potential, compared to peers.

The S&P 500 Index has gained 12.9% so far in 2010, while the SPDR S&P Metals and Mining ETF ( XME) surged 32.7%, outperforming broader markets. Given the current run-up in metals prices and the positive momentum in equity markets, metals and mining stocks will likely provide investors attractive returns during 2011.

Analysts expect the following 10 metals and mining stocks to outperform their peers and broader markets, based on the upside implied from their price targets for 2011. These stocks are expected to gain in the range of 23%-40% over the next 12 months, with a mean upside value of around 20%. In addition, most of these stocks received favorable buy recommendations.

The stocks are stacked by upside, from great to greatest.

10. International Coal ( ICO) is a leading coal producer in Central and Northern Appalachia and the Illinois Basin.

The stock has gained around 88% year to date, ahead of Peabody Energy's ( BTU) 40%, Consol Energy's ( CNX) -2%, Alpha Natural Resources' ( ANR) 33%, Arch Coal's ( ACI) 55%, Massey Energy's ( MEE) 25%, Alliance Holdings' ( AHGP) 74%, and Natural Resource Partners' ( NRP) 33% gains.

Analysts polled by Bloomberg expect International Coal to report earnings of 8 cents in the fourth quarter, compared to a loss of 7 cents a year earlier. Analysts foresee the company reporting earnings of 28 cents per share for 2010 and 60 cents per share for 2011, in comparison to earnings of 14 cents for 2009.

Of the eight analysts covering the stock, six recommend buying and two rated holding. During 2011, analysts anticipate the stock to gain 23% with a consensus 12-month target price of $8.9.

9. Canada's Kinross Gold ( KGC) is engaged in gold mining with projects in Canada, the U.S., Brazil, Chile, Ecuador, Russia, Ghana, and Mauritania.

For the third quarter of 2010, it had earnings of 44 cents per share compared to 15 cents per share and a loss of 4 cents per share in the quarter-ago and year-ago periods, respectively. In its third-quarter earnings release, Kinross upgraded its production guidance to 2.30 million ounces to 2.35 million ounces, up from the earlier forecast of 2.2 million ounces.

The company is set to report earnings of 76 cents per share for 2010 and 86 cents per share for 2011, up from 44 cents per share in 2009, according to analysts polled by Bloomberg.

Based on consensus estimates of price target, the stock has an upside of 23% for 2011, ahead of Barrick Gold's ( ABX) 18%, Newmont Mining's ( NEM) 20%, and Agnico-Eagle Mines' ( AEM) 9%.

Of the 23 analysts covering the stock, 16 recommend buying, 6 rated holding, while 1 advised selling.

8. South Korea's Posco ( PKX) is the world's third-largest steel company generating around 70% sales in South Korea, home for Hyundai Motors and Kia Motors.

Posco's stock underperformed peers, declining around 19% during 2010. The hike in iron ore and coking coal prices has impacted the company's earnings as Posco could not pass on increased raw material costs to customers, despite higher steel prices during the year. Consequently, third-quarter earnings were lower than expected, requiring a 7% downward revision in full-year profit.

During 2011, rebound in China's steel demand will benefit Posco, compared to other international steel producers. Analysts expect the stock to gain 37% with a consensus 12-month target price of $146.

In comparison, steel majors, U.S. Steel ( X), A.K. Steel ( AKS), Nucor ( NUE), Steel Dynamics ( STLD), Schnitzer Steel ( SCHN), and ArcelorMittal ( MT) have an upside potential of around 6%, 19%, 8%, 16%, -8%, and 30%, respectively.

7. Canada's Goldcorp ( GG) is engaged in the exploration, development, and operation of gold mines in Canada, the U.S., Mexico, and Central and South Americas.

Goldcorp doubled its annual dividend to 36 cents per common share during the last week of October. Commenting on this move, Chuck Jeannes, the company's president and CEO said, "Goldcorp's current financial strength and growing cash flows enable us to significantly increase our dividend, while also executing on our plan to deliver 50% production growth over the next five years."

Goldcorp expects total cash costs to fall below its original guidance of $350 per ounce, on a by-product basis, while maintaining its production guidance of 2.55 million ounces this year. During the first nine months, cash costs were around $297 per ounce. Since 100% of the company's gold production is unhedged, an uptrend in gold prices would boost Goldcorp's earnings.

Analysts polled by Bloomberg expect the company to report earnings of $1.86 per share for 2010 and $1.91 per share for 2011, a significant turnaround from earnings of 33 cents per share in 2009. Of the 21 analysts covering the stock, 16 recommend buying, 4 rated holding, and 1 advised selling.

During 2011, analysts expect the stock to gain 27% with a consensus 12-month target price of $57.8.

6. IAMGOLD ( IAG) is a Canada-based mining and exploration company.

Early December, the company revised its annual dividend payment 33% higher to 8 cents per share. IAMGOLD's president and CEO Steve Letwin said, "The dividend increase reflects the confidence the board and management have in the current and future cash flows for the Company. We have a superior combination of assets and people, and when you couple that with our strong balance sheet and attractive opportunities, the outlook for growth is very positive." The company expects its gold production to increase by 20% during 2011

According to consensus estimates of price target, the stock has an upside of 32% during 2011, ahead of Gold Fields' ( GFI) 15%, and Golden Star Resources' ( GSS) 16%.

For the current quarter, analysts expect IAMGOLD to report earnings of 27 cents, compared to earnings of 11 cents and a loss of 13 cents in the quarter-ago and year-ago periods, respectively. For the full year, the company is set to report earnings of 67 cents per share for 2010 and $1.29 per share for 2011, in comparison to earnings of 32 cents per share during 2009, according to analysts polled by Bloomberg.

Of the 19 analysts covering the stock, 14 recommend buying and 5 rated holding.

5. Mag Silver ( MVG) is engaged in acquisition, exploration, and development of mineral properties in Mexico.

The stock gained around 108% year to -date, while Silver Wheaton ( SLW) was the best performer among silver producers with year-to-date gains of 158%.

Among other silver majors, Pan American Silver ( PAAS), Coeur d'Alene Mines ( CDE), Compania de Minas Buenaventura's ( BVN), Hecla Mining ( HL), Silver Standard Resources ( SSRI), and Endeavour Silver ( EXK) gained around 74%, 55%, 46%, 83%, 29%, and 100%, respectively.

Both the analysts covering Mag Silver recommend buying. The stock is expected to gain 32% in 2011 with a consensus 12-month target price of $16.4. Silver Wheaton and Pan American Silver follow Mag Silver, with an upside potential of 9% each.

4. Metalico ( MEA) is a scrap metal processor and the largest fabricator of lead-based products.

The stock is set to benefit from robust scrap metal demand from emerging economies, especially China and India. Commenting on third-quarter earnings, President and CEO Carlos E. Agueero said, "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."

He added, "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. We anticipate that metal prices will be supported by recovering global manufacturing demand coupled with restrained scrap supply and augmented by accelerating weakness in the U.S. dollar and other major currencies, which favors holding real assets such as metals and other commodities."

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

During the past three months, the stock gained around 40%. Of the four analysts covering the stock, three recommend buying and one rates selling.

At $5.63, analysts anticipate an upside of 33% for 2011, based on the consensus target price of $7.5.

3. Rio Tinto ( RIO) is a global metals and mining giant with operations in more than 50 countries.

Rio Tinto will continue to benefit from its iron ore business in the long run, as the business contributes 28% toward total revenues. According to analysts polled by Bloomberg, the company is set to announce earnings of $7.03 per share for 2010 and $8.79 per share for 2011, a remarkable improvement from $2.76 per share reported in 2009.

At $70.8, the stock is currently trading at an attractive price-to-earnings multiple of 9.6. In comparison, mining giants BHP Billiton ( BHP), Vale ( VALE), Alcoa ( AA), Freeport-McMoRan Copper & Gold ( FCX), and Teck Resources ( TCK) are trading at PE multiples of 12.4, 11.0, 28.9, 14.0, and 19.5, respectively.

All four analysts following Rio recommend buying the stock. Analysts expect the stock to gain 37% during 2011 with a consensus 12-month target price of $97.2. In comparison, BHP Billiton and Vale have upsides of 6% and 18%, respectively.

2. U.S. Gold ( UXG) is engaged in the exploration of gold, silver, and other minerals with exploration properties in Nevada, the U.S. and Mexico's Sinaloa state.

So far this year, the stock has zoomed 220%, providing attractive returns to investors, ahead of New Gold's ( NGLD) 164.6%, Yamana Gold's ( AUY) 12.1%, Eldorado Gold's ( EGO) 30.6%, Harmony Gold Mining's ( HMY) 23.0%, and Royal Gold's ( RGLD) 16.3%.

The two analysts covering the stock recommend buying. The stock is expected to gain 29% during 2011 with a 12-month target price of $11.1. This upside comes on top of an outstanding performance during 2010.

1. Stillwater Mining ( SWC) is engaged in the development, extraction, processing, refining, and marketing of platinum and palladium. The company is the only producer of platinum group metals (PGMs) in the U.S.

The stock will likely see an upside on the growing deficit for PGMs. The company is investing in new projects such as Graham Creek at its East Boulder mine and the Blitz at its Stillwater mine to leverage the anticipated run-up in palladium and platinum prices during 2011.

Year to date, the stock surged 127%, in comparison to the 97% jump in North American Palladium ( PAL) and a 28% gain in Platinum Group Metals ( PLG).

>To see these stocks in action, visit the 10 Metal Stocks for 2011 portfolio on Stockpickr.

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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