Stillwater Mining Could Ride Platinum's Tide Higher

NEW YORK (TheStreet) -- Platinum futures haven broken above $1,500 for the first time this year, putting the spotlight on shares of platinum mining company Stillwater Mining (SWC) as an investment worthy to consider.

The spike in platinum futures this week, also represented by ETFS Physical Platinum Shares (PPLT), is in part the result of strong U.S. auto sales as well as labor strife in mines in South Africa.

 PPLT Chart
PPLT data by YCharts

U.S. June auto sales lifted the metal by reaching levels that hadn't been seen since before the financial crisis.

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June sales rose 1.2%, beating expectations of a 3% decline. Seasonally adjusted annualized sales hit 16.98 million vehicles, the highest since July 2006, according to industry consultant Autodata Corp.

Platinum is tied to car sales because it is used in catalytic converters, which are in the exhaust systems of most cars. Catalytic converters combine carbon monoxide and unburned fuel from a car's exhaust to control pollution.

On Tuesday, in South Africa, the world's top platinum producer, 220,000 members of the National Union of Metalworkers in the nation's metal and engineering industries went on strike over a pay dispute.

The workers have failed to reach a resolution with their employers for after three months of talks.

"The union won't settle for increases of less than 10 percent, the banning of companies that provide contract workers and the reconsideration of a government subsidy for inexperienced young workers," union leader Irvin Jim said in a statement.

With geopolitical and fundamental factors supporting the price of platinum, this week's spike may turn into a long-term trend.

Stillwater Mining provides a good way to gain exposure to that trend outside of owning volatile commodity futures. The company's stock has tracked platinum prices this year.

The chart below shows that Stillwater has been ascending since October, and has yet to break its upward channel.

Stillwater's price also reached $18.70 this week, a level not seen since 2011. If platinum continues to outperform, expect Stillwater to recapture its 2012 levels around $25.

SWC Chart
SWC data by YCharts

At the time of publication, the author had no position in the stock or fund mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates STILLWATER MINING CO as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate STILLWATER MINING CO (SWC) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The current debt-to-equity ratio, 0.37, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 6.20, which clearly demonstrates the ability to cover short-term cash needs.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 68.76% over the past year, a rise that has exceeded that of the S&P 500 Index. Although SWC had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • STILLWATER MINING CO has improved earnings per share by 25.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, STILLWATER MINING CO swung to a loss, reporting -$2.26 versus $0.46 in the prior year. This year, the market expects an improvement in earnings ($0.57 versus -$2.26).
  • The gross profit margin for STILLWATER MINING CO is rather low; currently it is at 23.19%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 8.91% trails that of the industry average.
  • Net operating cash flow has significantly decreased to $4.77 million or 69.26% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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