Roof Leaker To Watch: Southern Copper (SCCO)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Southern Copper ( SCCO) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Southern Copper as such a stock due to the following factors:

  • SCCO has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $55.7 million.
  • SCCO has traded 1.4 million shares today.
  • SCCO is trading at 3.07 times the normal volume for the stock at this time of day.
  • SCCO crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on SCCO:

Southern Copper Corporation is engaged in the mining, exploring, smelting, and refining copper and other minerals in Peru, Mexico, Argentina, Chile, and Ecuador. The stock currently has a dividend yield of 1.5%. SCCO has a PE ratio of 19.3. Currently there are 4 analysts that rate Southern Copper a buy, 1 analyst rates it a sell, and 3 rate it a hold.

The average volume for Southern Copper has been 1.8 million shares per day over the past 30 days. Southern Copper has a market cap of $26.9 billion and is part of the basic materials sector and metals & mining industry. The stock has a beta of 1.39 and a short float of 6.3% with 5.08 days to cover. Shares are up 10.1% year-to-date as of the close of trading on Friday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Southern Copper as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the ratings report include:
  • SCCO's revenue growth has slightly outpaced the industry average of 0.6%. Since the same quarter one year prior, revenues slightly increased by 5.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for SOUTHERN COPPER CORP is rather high; currently it is at 51.15%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 22.67% is above that of the industry average.
  • Net operating cash flow has increased to $348.77 million or 13.99% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -10.34%.
  • SCCO's debt-to-equity ratio of 0.71 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that SCCO's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.22 is high and demonstrates strong liquidity.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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