FBR Capital on Energy & Natural Resources: Metals & Mining - Despite Near Term Choppines, Long Term Fundamentals Remain Solid
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Price: $12.38 +3.34%
Rating Summary:
18 Buy, 17 Hold, 7 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
18 Buy, 17 Hold, 7 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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FBR Capital on Energy & Natural Resources: Metals & Mining - Despite Near Term Choppines, Long Term Fundamentals Remain Solid
FBR analyst says, "The coal and iron ore space remain very volatile but worth investors focus given the alpha generation capability, scarcity factor, and in the end are still needed commodities. With the stocks having pulled back on average 9% since January 2011 peak and some names down more than 15%, we believe opportunities have opened up for investors to start building position in the names. While we acknowledge and baked in ongoing macro concerns (Middle East unrest, China slowing and European debt concerns), our coal price forecast is backwardated for a reason with lower than expected Chinese steel production. What also gives us comfort is the companies' solid balance sheet, relatively low CAPEX, and strong free cash flow generation should help weather near term concerns. If the stock prices continue to slide, companies will likely step into buyback shares and has the capacity to acquire 5-10% of shares outstanding. While Arch (NYSE: ACI) and Peabody (NYSE: BTU) could buyback sooner, we believe Walter (NYSE: WLT), Alpha (NYSE: ANR), and Cliffs (NYSE: CLF) can do so within 6-12 months once they close ongoing acquisitions. The group has receded about 9% since the recent peak and likely has more downside due to macro concerns but investors can clearly start to nibble on the large well capitalized companies, as we think these will be the first place capital flows back to the space. We continue to prefer large caps: ACI, CLF, BTU, CONSOL (NYSE: CNX) and ANR, Cloud Peak (NYSE: CLD) provides a nice counter play to oil price declines. We are keeping our eye open on WLT and PCX given recent pullbacks for a possible entry point and catalyst to drive investors back in. The near-term catalysts appear to the downside with the MACT proposals coming out next week, Chinese steel prices receding with demand softening (detailed in our steel newsletter), and met coal prices peaking in the near-term, We expect the total downdraft to last about 2-3 months unless the middle east unrest worsens."
FBR analyst says, "The coal and iron ore space remain very volatile but worth investors focus given the alpha generation capability, scarcity factor, and in the end are still needed commodities. With the stocks having pulled back on average 9% since January 2011 peak and some names down more than 15%, we believe opportunities have opened up for investors to start building position in the names. While we acknowledge and baked in ongoing macro concerns (Middle East unrest, China slowing and European debt concerns), our coal price forecast is backwardated for a reason with lower than expected Chinese steel production. What also gives us comfort is the companies' solid balance sheet, relatively low CAPEX, and strong free cash flow generation should help weather near term concerns. If the stock prices continue to slide, companies will likely step into buyback shares and has the capacity to acquire 5-10% of shares outstanding. While Arch (NYSE: ACI) and Peabody (NYSE: BTU) could buyback sooner, we believe Walter (NYSE: WLT), Alpha (NYSE: ANR), and Cliffs (NYSE: CLF) can do so within 6-12 months once they close ongoing acquisitions. The group has receded about 9% since the recent peak and likely has more downside due to macro concerns but investors can clearly start to nibble on the large well capitalized companies, as we think these will be the first place capital flows back to the space. We continue to prefer large caps: ACI, CLF, BTU, CONSOL (NYSE: CNX) and ANR, Cloud Peak (NYSE: CLD) provides a nice counter play to oil price declines. We are keeping our eye open on WLT and PCX given recent pullbacks for a possible entry point and catalyst to drive investors back in. The near-term catalysts appear to the downside with the MACT proposals coming out next week, Chinese steel prices receding with demand softening (detailed in our steel newsletter), and met coal prices peaking in the near-term, We expect the total downdraft to last about 2-3 months unless the middle east unrest worsens."
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