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Nice overview of cyclical metals and mining stocks

Martin T. Sosnoff at profiles cyclical stocks that tend to pop early in an economic rebound.

I am periodically intrigued by some viciously cyclical properties like U.S. Steel, Freeport-McMoran and Rio. We’re talking about steel, copper and iron ore. Worldwide industrial production governs the price cycle of these commodities. Fertilizer producers like Mosaic and Potash are tied to agricultural cycles in corn, wheat and soybeans.

Freeport is almost a pure copper play with some byproduct gold. Less than a year ago, copper prices surged above $4 a pound. Today, copper trades around $1.50. Interestingly, Freeport earns a little money even at $1.50 a pound copper.

Sosnoff notes that Freeport topped $127 last year and now is in the $20s. U.S. Steel was at $196 last year and now is around $28. Could they rocket back up to those levels? Perhaps, but…

I had no idea that U.S. Steel peaked at $196 last summer when its earnings power was projected above $18 a share. No cyclical stock ever sells for long at 10 times projected peak earnings, but obviously, Wall Street didn’t see a deep recession about to unfold. It now trades around $28. If oil prices ever recover, its tubular steel division again will earn serious money, but worldwide steel production is likely to fall 10% this year and then recover slowly.

Overall a nice read, with cool anecdotes about his mom’s moldy General Motors certificates.

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Tom Mangan posted at 9:58 am February 5th, 2009 |

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