Slower-than-expected Chinese growth and Federal Reserve tapering discussions have severely affected the commodity world. Strengthening of the U.S dollar, unwinding of the global carry-trade and tame global inflation also have played their part in crushing commodity prices. If a weaker-than-expected commodity scenario plays out, numerous rounds of equity raises to shore up balance sheets could be on the horizon by 2014. Even with all the pain and misery, Deutsche Bank A.G. (NYSE: DB) has four solid stocks to buy.
The metals and mining analysts at Deutsche Bank say that large-cap miners view credit markets as still open for multibillion dollar fundings and intone a “disconnect” between equity performance and business fundamentals. In a recent report, they screened their coverage names for stocks that investors can buy now. Given the massive sell-off in all commodity names, this may be an excellent contrarian play for investors.
Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) makes the final four at Deutsche Bank. The stock is a favorite holding of hedge fund managers John Paulson and Leon Cooperman. Paulson owns 9 million shares, while Cooperman’s Omega advisors holds more than 3 million. The stock is currently down sharply from its levels late last year after the company purchased two oil and gas exploration and production companies, a move that received mixed reviews on Wall Street. Deutsche Bank has a $40 price target for the stock. The Thomson/First call estimate is at $38. Patient shareholders will be paid a stellar 4.5% dividend as they wait for this former high flyer to come back.
Thompson Creek Metals Co. Inc. (NYSE: TC) might be a small cap home run for investors. The company has been challenged by low prices for its primary product, molybdenum, and a very costly build out at its Mt. Milligan copper and gold mine. The stock is very attractively priced at a 54% discount to its book value of $8.30 per share. The Deutsche Bank price target for the stock is $4, and the consensus target is even higher at $4.50.
Vale S.A. (NYSE: VALE) is the world’s largest producer of iron ore and pellets. In addition to its iron ore exposure, which is directly linked to infrastructure investment in China, about 20% of Vale’s revenues come from nonferrous metals, which provide exposure to the recovery in OECD economies. Deutsche Bank has a $22 price objective for the stock, and the consensus target is close by at $21.40. Again, patient contrarian investors will be paid an outstanding 5.7% dividend while they wait for the stock to turn. Trading to the price target would represent a gain of more than 65%.
Coeur Mining Inc. (NYSE: CDE) had a big day Friday, up almost 10%. Silver output at the company is expected to increase in coming years, driven by steady state operations at its mines in Kensington and Palmarejo and brownfield expansion at the Rochester and San Bartolomé mines. A survey by Bloomberg in December showed that investors expected silver to be one of the star investments of 2013 with a return of 33%. However, the 28% decline in prices to approximately $21.80 per ounce is the worst performance on record since 1984. Though analysts expect a rebound by December 2013, the decline for the year would still be in excess of 20%. Deutsche Bank has an $18 price target for the stock, and the consensus is higher at $19. A price move to the targets would represent a 45% gain from current levels.
The S&P 500 Metals & Mining index has posted a negative 22% negative return year to date, versus a 11% positive return for the S&P 500, the third straight year of underperformance after posting a 26% negative return versus the S&P 500 in 2012 and negative 27% in 2011. Of course, trend followers are shouting that gold and silver stocks are still a short, even after the battering they have taken. With every major central bank in the world printing money in an effort to inflate their economies, investors with a mind for contrarian stock plays might do very well to nibble at some of these top names. Remember in 2008 Wall Street said the home building stocks would never come back either.
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