While Iron Ore prices are a much debated hot button issue for investors, I
expect the price of almost every commodity out there to rise over the long term,
even iron ore, with all of the capacity related issues the industry faces.
While The following stocks are primarily supplying steel companies and are
economically sensitive, these names are cheap enough for investors to hold onto
even with the economic headwinds they face. As for gold and silver mining, we
expect the stocks with the highest reserves/market cap ratios to outperform, and
we are especially bullish on mining stocks that have large reserves and positive
free cash flows.
Vale (VALE) – At 5.8X earnings, Vale is
a value here in my opinion, and the stock is simply too cheap to ignore. Given
the constant erosion of paper wealth over time, investors should consider mining
stocks like VALE, which benefit from rising commodity and metals prices. Vale’s
4.6% forward dividend yield is compelling right now, and the stock has lagged
the market over the past year, with the name down some 25% from July of 2011.
Many investors are worried about a slowdown in the Chinese economy, which would
hurt demand for Vale, but we think these fears are overblown and that rising
commodity prices are enough to compensate for China’s vast abandoned cities and
overbuilt property markets. Some of these concerns are worrisome, and the demand side of the VALE and RIO situation should be watched closely.