The Zacks Mining - Non Ferrous industry
primarily includes companies that produce non-ferrous metals including copper, gold, silver, cobalt, molybdenum, zinc, aluminium, uranium, etc. These metals are used by a wide range of industries such as the aerospace, automotive, packaging, construction, industrial machinery, electronics, transportation, jewelry, chemical as well as the nuclear energy.
Let us take a look at the three major themes in the industry:
- The Mining - Non Ferrous industry is subject to fluctuations based on changes in global economic conditions and metals’ end-use markets. The metal prices have been affected by a gamut of factors, including a stronger U.S. dollar, interest rate hikes and U.S-China trade war apprehensions. Further, disappointing data from China is a major concern as China is the biggest metal consumer. Since the industry cannot control the price of the products, it focuses on improving sales volumes, operating cash flow and lowering unit net cash costs. Over the past few years, miners have trimmed capital spending and focused on cost-reduction strategies and digital innovation to drive operating efficiencies.
- The industry is currently plagued with escalating production costs. Labor is major component of input costs for the mining industry. The industry has been facing a shortage of skilled workforce that led to a spike in wages. Moreover, labor-related disputes can be damaging to production and revenues. Miners are feeling the pinch of higher fuel prices. Electricity outages and shortages in several countries are adding to the woes. To minimize fuel price volatility and secure supply, companies are opting for alternate energy sources.
- Resources are getting depleted, supply from old mines is declining and there is a lack of development of new mines. Further, development projects are inherently risky and capital intensive. Meanwhile, demand is increasing due to requirement from emerging markets, and economic activity in the United States and other industrialized countries. So, there will be an eventual deficit in metal supply that could aid in bolstering metal prices, which bodes well for the industry in the long haul.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Mining- Non Ferrous Industry is an 11-stock group within the broader Zacks Basic Materials Sector. The industry currently carries a Zacks Industry Rank #68, which places it at the top 27% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has increased 5%.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector on Shareholder Returns
The Mining- Non Ferrous Industry has underperformed the S&P 500 as well as its own sector over the past year. The stocks in this industry have collectively dipped 17.6% in the past year while the Basic Materials Sector declined 6.3%. On the contrary, the Zacks S&P 500 has gained 10.2% over the same period.
One-Year Price Performance
Mining- Non Ferrous Industry’s Valuation
EV/EBITDA ratio is commonly used for valuing mining- non ferrous stocks. The industry currently has a trailing 12-month EV/EBITDA ratio of 5.4, which is lower than its five-year median of 8.6. This clearly signifies that the stock has considerable upside potential.
The industry is trading at lower levels compared with the S&P 500’s trailing 12-month EV/EBITDA ratio of 11.3 and median level of 9.9.
EV/EBITDA Ratio (TTM)
Further, the industry valuation is below the broader markets’ trailing 12-month EV/EBITDA ratio of 7.7 and five-year median level of 10.4.
EV/EBITDA Ratio (TTM)
In addition to infrastructure growth in emerging economies, Global GDP growth is expected to underpin continued demand for mining products. Moreover, continued improvement in end-use sectors like automotive, aerospace, construction and packaging, among others, bode well for metals. Additionally, gold and silver has long been considered as a safe haven investment in times of financial or political uncertainty. Overall, the long-term fundamentals of metals remain positive, supported by their significant role in the global economic development and a challenging long-term supply environment.
The Zacks Mining- Non Ferrous industry currently has just one Zacks Rank #1 (Strong Buy) stock. While it could be a solid bet right now, investors may want to hold on to the Zacks Rank #3 (Hold) stocks.
The Zacks Consensus Earnings Estimate for fiscal 2018 indicates year-over-year growth of 53%. The company has delivered an average positive earnings surprise of 28.13% over the trailing four quarters.
Price and Consensus: UUUU
(FCX - Free Report
) : This Phoenix, AZ-based company is a Zacks Ranked #3 stock. The Zacks Consensus Earnings Estimate for fiscal 2018 indicates year-over-year growth of 52%. The company has delivered an average positive earnings surprise of 2.01% in the trailing four quarters.
Price and Consensus: FCX
Southern Copper Corporation
(SCCO - Free Report
) : This Phoenix, AZ-based company company carries a Zacks Rank #3. The Zacks Consensus Earnings Estimate for fiscal 2018 indicates year-over-year growth of 148%.
Price and Consensus: SCCO
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