Four Mining and Metals Stocks With Upside Potential (ABX, FCX, KGC, SCCO)
Mining and metals stocks have struggled for quite some time, but Merrill Lynch analysts see upside in potential in the sector based on increasing evidence of global growth.
Below we take a look at how these four stocks have fared and what analysts in general expect from them.
Note that the Merrill Lynch team also singled out Allegheny Technologies (NYSE: ATI), CONSOL Energy (NYSE: CNX), Kaiser Aluminum (NASDAQ: KALU) and Vale (NYSE: VALE) in this research report, but their price targets were less than the consensus estimates.
This Canadian gold and copper producer sold three mines to Gold Fields (NYSE: GFI) in August. Barrick Gold sports a market capitalization of more than $18 billion and offers a dividend yield near 1.0 percent. However, so far its long-term earnings per share (EPS) growth forecast is only about two percent, and the return on equity is in negative territory.
Only seven of the 26 analysts surveyed by Thomson/First Call recommend buying shares. However, the price target, or where analysts expect the share price to go, is more than 17 percent higher than the current share price. Merrill Lynch sees more than 26 percent upside potential.
Shares have traded mostly between $15 and $20 since April, but they are down more than 48 percent year to date. Over the past six months, the stock has underperformed the S&P 500 and Newmont Mining (NYSE: NEM) but outperformed AngloGold Ashanti (NYSE: AU).
See also: Short Interest Swings In Gold Stocks
Freeport-McMoRan Copper & Gold
This U.S.-based mining giant reported falling but better-than-expected EPS in its most recent quarterly report. The more than $33 billion market cap company offers a 4.0 percent dividend yield. The long-term EPS growth forecast is more than 12 percent, and the return on equity is almost 15 percent.
Five of the 20 polled analysts rate the stock at Strong Buy, and another nine also recommend buying shares. The analysts see some headroom for shares, as their mean price target is more than 10 percent higher than the current share price. Merrill Lynch sees more than 12 percent potential upside.
The share price has risen about 12 percent in the past two weeks and now is down less than 10 percent year-to-date. The stock has underperformed the broader markets over the past six months, but it has outperformed competitors such as Newmont Mining and Southern Copper.
This Canadian company, like other gold miners, has benefited recently as uncertainty about the end of Fed bond buying and over the looming federal debt fight have pushed gold prices higher. Its market cap is more than $6 billion, and it plans to end its dividend. Here too the return on equity is in the red.
Ten of the 22 analysts polled recommend buying shares, and nine others recommend holding them. The analysts' mean price target is less than 23 percent higher than the current share price. Merrill Lynch sees marginally more upside than that. Both targets are less than the 52-week high.
The share price has climbed more than 17 percent from the 52-week low reached back in July. It is still down more than 45 percent year-to-date. Over the past six months, this stock has outperformed competitor Barrick Gold, though it has underperformed the S&P 500 and Newmont Mining.
This Phoenix, Arizona-based miner and processor also saw coverage initiated Wednesday by BMO Capital at Market Perform, but with a price target less than the consensus estimate. Its market cap is almost $24 billion and its dividend yield is near 1.7 percent. The long-term EPS growth forecast of more than 12 percent.
The consensus recommendation is to hold shares, and it has been for at least three months. The mean price target indicates more than 15 percent potential upside. The Merrill Lynch price target is more than 21 percent higher than the current share price. Both targets are less than the 52-week high.
The share price is more than 27 percent lower than at the beginning of the year, but it appears to have bottomed in early August. Yet Southern Copper has underperformed competitor Freeport-McMoRan Copper & Gold and the broader markets over the past six months.
At the time of this writing, the author had no position in the mentioned equities.
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