6 Minor Metal Stocks to Watch

NEW YORK (TheStreet) -- Minor metals are recovered as byproducts of base metals and find application in devices such as mobile phones, miniature motors, solar panels, solar cells and computer chips. Based on their primary end-uses, minor metals are categorized into four-groups: Electronic Metals (Gallium and Germanium), Power Metals (Molybdenum and Zirconium), Structural Metals (Chromium and Vanadium) and Performance Metals (Titanium and Rhenium).

According to the London-based Minor Metals Trade Association (MMTA), its members alone account for over $10 billion in annual trade of minor metals. The MMTA includes 120 companies spread across 30 different countries. Recent statistics from the USGS show that China has the lion's share of these metals, accounting for approximately 34% of global production.

Research studies show rising demand coupled with declining inventories would lead to an almost 20% rise in minor metal prices in 2011. The study indicates that massive investments are in the pipeline for the green energy infrastructure projects worldwide, thereby boosting prices of minor metals like indium, germanium, gallium and tellurium.

On Feb. 22, 2011, the LME recorded its first successful year of trading in minor metals with over $430 million traded in cobalt and molybdenum. Cobalt traded record volumes of 7,825 tons in the price range of $35,000 to $48,000 per ton, while moly traded 3,498 tons in volumes in the price range of $30,000 to $40,000 per ton. For the first half of 2011, cobalt and moly traded at 6.8% and 9.7% higher volumes. The LME stock movements for minor metals reflect an active physical market with good support from producers registering their brands.

Analysts polled by Bloomberg foresee potential upside of 18% to 65% for these six stocks with buy rating of 46% and hold rating of 40%.

We have listed the stocks in ascending order of potential upside.

6. Cree ( CREE) develops and manufactures semiconductor materials and devices, based on silicon carbide (SiC), gallium nitride (GaN) and related compounds. The company also manufactures light emitting diode (LED) products and power and radio frequency (RF) products.

For the fourth quarter of 2011, CREE recorded an 11% sequential increase in total revenue to $243 million. Cash and investments at the end of the quarter grew to $1.09 billion, reflecting an increase of $12.7 million from the third quarter of 2011. For full year 2011, revenue increased 14% to $987.6 million from the same period in 2010. Non-GAAP net income rose 4% to $186.8 million, or $1.7 per diluted share.

The company recently announced the acquisition of Ruud Lighting for an estimated $525 million, comprised of $372 million in cash and $211 million in stock. The stock portion comprises 6.07 million Cree shares. The acquisition creates a market leader in LED-based systems and expands the market for CREE's LED lighting installations.

For the first quarter of 2012, the company expects revenue to range from $245 to $255 million. Meanwhile, GAAP net income is forecast at $16 to $19 million, or 14 cents to 17 cents per diluted share. Non-GAAP net income is seen at $28 to $31 million, or 25 cents to 28 cents per share.

Of the 29 analysts covering the stock, 55% recommend a buy and 24% rate a hold. Analysts surveyed by Bloomberg forecast an average 12-month price target of $41.18, nearly 18.5% greater than the current price.

5. General Moly ( GMO) is a development-stage company engaged in the business of exploration, development and mining of properties containing molybdenum. The company has 80% interest in the Mt. Hope Project, a primary molybdenum property in Nevada, with proven and probable molybdenum reserves of 1.3 billion pounds, with 1.1 billion pounds estimated recoverable.

The company reported net loss of $5.4 million, or 6 cents per share, for the second quarter of 2011. Cash balance at the end of the quarter was $59 million compared to $54 million at the end of 2010. During the quarter, the company took a $3.4 million non-cash write down, representing approximately 50% of a long-term deposit on mining equipment with the passage of a June 30, 2011 deadline for a firm purchase order.

General Moly expects molybdenum demand and prices to strengthen towards the end of 2011, putting the current weakness in prices to seasonal steel production trends. The current price of molybdic oxide ranges from $14.80 to $15.15 per pound, after trading as high as $17.50 to $17.90 in April.

During the quarter, for its Mt. Hope project, the company completed work with a Chinese engineering firm to reformat and translate its Bankable Feasibility Study for the Chinese banks at a cost of approximately $0.9 million. For its Liberty project, General Moly announced the results of 33 core holes. These core holes will be incorporated into a revised resource estimate, which is likely to be released in the third quarter of 2011. Besides, GMO is initiating talks with several parties regarding investment and off-take opportunities with respect to the Liberty project.

Of the four analysts covering the stock, one recommends a buy and two rate a hold. Analysts surveyed by Bloomberg have an average 12-month price target of $5.72 for the stock, which is 50.3% higher than the current price.

4. Titanium Metals ( TIE) is a producer of titanium melted and mill products, with production facilities in the U.S. and Europe.

During the second quarter of 2011, the company recorded net income of $31.5 million, or 18 cents per share, compared to $19 million, or 11 cents per diluted share, in the year-ago quarter. Net sales soared to $272 million from $212 million in second quarter of 2010. Melted product shipments were up 37.2% at 1,790 metric tons, while milled products shipments surged 33.1% to 4,220 metric tons.

The company has declared a quarterly dividend of $0.075 per share on its common stock, payable September 20, 2011. Harold Simmons, chairman of TIE, announced that the company purchased 600,000 shares of its common stock on Aug. 8, 2011, at an average price of $13.65 per share.

Looking ahead, the company believes that as the commercial aerospace sector contributes towards substantial demand, continued improvement in the sector will support current production and the anticipated increase in output levels for the rest of 2011. Also, the recent build rate forecast from The Airline Monitor continues to support the company's positive outlook for long-term demand growth in the industry.

Of the four analysts covering the stock, one recommends a buy and the rest suggest a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg project an average 12-month price target of $21.50, up 50.5% from the stock's current price.

3. AXT ( AXTI) manufactures and sells compound and single-element semiconductor substrates for use in wireless communications, lighting display and solar cells. The company offers substrates made from gallium arsenide (GaAs), indium phosphide (InP) and germanium (Ge). Its manufacturing facility is located in China.

For the second quarter of 2011, net revenue was $30 million, up 29.6% from the year-ago quarter. Net income for the quarter soared to $7.1 million, or 21 cents per diluted share, from $5.5 million, or 17 cents per diluted share, in the second quarter of 2010. Total gallium arsenide (GaAs) substrate revenue was up 11.1%, while Germanium (Ge) substrate revenue increased 68.7% for the quarter.

For the third quarter, the company sees revenue between $30.5 and $31.5 million and net income per share between $0.18 and $0.20, taking into account the weighted average share count of approximately 33.4 million shares.

Of the four analysts covering the stock, three recommended a buy. Analysts polled by Bloomberg forecast an average 12-month price target of $12.43, or 52.2% higher than the current price.

2. RTI International Metals ( RTI) is a producer and global supplier of titanium mill products and a manufacturer of fabricated titanium and specialty metal components for the national and international aerospace, defense, energy, and industrial and consumer markets. The company has three business groups: Titanium Group, Fabrication Group and Distribution Group.

During the second quarter 2011, the company reported net income of $2.1 million, or 7 cents per diluted share, on net sales of $123.2 million and operating income of $6.1 million. For the second quarter of 2010, RTI recorded net income of $10.2 million, or 34 cents per diluted share, on net sales of $106.7 million and operating income of $2.1 million.

Recently, as per a top executive of RTI International, the company's move into fabrication indicates its decision to diversify away from the titanium mill product business and present more value to original-equipment manufacturers. Also, this move would help the company's mill business as it will pull more volume through the mill.

The company expects consolidated sales to exceed $500 million for fiscal 2011, as business prospects for the year continue to improve. Meanwhile, RTI's president foresees mill product shipments for the year reaching nearly 14 million pounds. At the recent Paris Air Show, RTI was exposed to new opportunities for both titanium fabricated and mill products.

Of the nine analysts covering the stock, two recommend a buy and six rate a hold. Data from Bloomberg has analysts reporting an average 12-month price target of $37.25, up 53.3% from the stock's current price.

1. Thompson Creek Metals ( TC), a mining company, operates two molybdenum mines, a copper-gold mine under construction, a stand-alone metals roasting facility, and a range of metal properties in various stages of exploration. The company has three segments: U.S. Operations Molybdenum, Canadian Operations Molybdenum, and Copper-Gold (Development).

Revenue for the second quarter of 2011 was $190.9, up 28.6% from the year-ago quarter. Sales volumes for the quarter rose 25% to 10.8 million pounds. Net income increased to $116.8 million, or 68 cents per diluted share. For the first six months of 2011, net income soared 92.6% to $245.7 million, or $1.41 per diluted share, from the same period in 2010.

Molybdenum production for the second quarter of 2011 increased 42.3% year-over-year. Non-GAAP average cash cost per pound produced for the second quarter of 2011 was $5.74 per pound, down 18.7% from the same quarter prior year. For the first half of 2011, the company produced 20.3 million pounds of molybdenum and sold 19 million pounds for an average realized sales price of $17.33, up 10.5% from $15.68 in the first half of 2010.

For 2011, the company expects higher production at its Endako mine and lower cash cost per pound produced in the second half of 2011, compared to the first half of 2011. Total molybdenum production for 2011 is pegged at 28 to 32 million pounds with an average cash cost of $7 to $8 per pound.

Of the 16 analysts covering the stock, 75% recommend a buy and the rest rate a hold. There are no sell ratings on the stock. A Bloomberg consensus expects an average 12-month price target of $12.99, which is 65.1% higher than the stock's current price.

>>To see these stocks in action, visit the 6 Minor Metal Stocks to Watch portfolio on Stockpickr.

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