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Investment Ideas

The long awaited September FOMC meeting is almost upon us. Speculation on what the Fed might do has caused a moderate sell off in equities, a spike in the VIX, and a bit of volatility in currency and commodity markets.

Metal and mining stocks have been hit harder than most, with the SPDR Metals and Mining ETF (XME - ETF report) down 15% from its highs in late July. Whenever a threat of a rate hike hits the news wires, traders immediately sell gold, silver and mining stocks.  However, the recent sell off might be overdone, with FedWatch pricing in only a 15% chance of a hike this week and 55% chance in December.

If the fed where to back off recent hawkish talk, gold and the mining sector could see a massive rally and head back to 2016 highs. Traders and investors must be ready with a watch list so they can jump in if the Fed backs off. However, if a rate hike were to come this week and surprise everyone, the sector should be avoided and more experienced investors could attempt shorting.

Below I list three top ranked stocks that should be bought in anticipation of the Fed not moving this week These stocks have a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a recent track record of earnings beats.

Arcelor Mittal (MT - Analyst Report) is a Zacks Rank #1 (Strong Buy) that operates as global integrated steel and mining company with a presence in more than 60 countries. Headquartered in Luxemburg with over 200,000 employees, the company is the world's leading steel and mining company. It operates a balanced portfolio of cost competitive steel plants across both the developed and developing world. In addition, Arcelor is the world’s fourth largest producer of iron ore.

Arcelor Mittal is valued at $17 billion and has a forward PE of 12. The stock sports a Zacks Style Score of “A” in Momentum and “B” in both Growth and Value.

In July the company reported a blowout EPS surprise of 375% to the upside. This was the third straight beat, which helps the bullish thesis that the bottoms are in for the stock. The recent pullback could provide investors a ripe opportunity to take advantage of not only a short term bounce, but also a longer term trend change in the stock.

AngloGold (AU - Snapshot Report) is a Zacks Rank #1 (Strong Buy) that is the largest gold producer in the world with reserves of 126 million oz. The company was founded in 1944, has 52,000 employees and is based in Johannesburg, South Africa.  

AngloGold has a market cap of $6 billion and a forward PE of 13. The stock sports Zacks Style Scores of “A” in Momentum and Value, and “B” in Growth.  Because of the company’s reserves and its ability to mine for gold, the stock moves up and down with the price of gold daily. The gold move after the Fed will directly affect the price of the stock.

Because of the recent improvement in the price of gold, estimates have been taken higher. In just the last 7 days, estimates for 2016 have been revised 19% higher, while 2017 has been revised 37% higher.

Coeur Mining (CDE - Snapshot Report) is a Zacks Rank #2 (Buy) that operates as a primary silver and gold producer with precious metals mines in the Americas. The company was founded in 1928, employs almost 2,000 people and is headquartered in Chicago, IL.

Coeur is valued at $2 Billion and has a forward PE of 34. The stock sports Zacks Style Scores of “A” in both Growth and Momentum.

While the company has come far from its low of $2 back in early 2016, the stock continues to be strong. An EPS beat of 1000% always helps, expect the strength to continue if the company can repeat last quarter’s performance when it reports on November 7th.

A spike in gold due to delayed rate hikes will help put a bid in the stock short term. However, any rate hike shock, expect the stock to sell off quickly.

In Summary

The metals & mining sector can be very volatile and dangerous. However, during big events like the FOMC, they can be very rewarding as well. Make sure when entering positions before an event, stop losses are used to preserve capital. Whatever happens this week expect big moves in the space.

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