Two Miners Look Good in Lagging Sector

 | Nov 11, 2013 | 10:00 AM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

wlt

,

fcx

Lagging sectors of the stock market have been a frequent focus area for these columns in the last few weeks. Sectors that significantly lag the market in one year frequently outperform the market the following year.

One of these lagging areas in 2013 has been in the mining sector. It has been one of the weakest areas of the market this year due to concerns about a slowdown in China and weak commodity prices. Recently, we have seen some improving economic numbers coming out of the middle kingdom and the sector has begun to rebound.

I have noticed in the last few weeks that insider buying in this area has picked up as well. I have found that significant new purchases by insiders frequently signal that the worst is over for a lagging stock or sector. Here are two miners which have seen heavy insider buying recently and which look like that 2014 could be a much better year for company performance.

Walter Energy (WLT) provides metallurgical coal for the steel industry. It also produces thermal and industrial coal, anthracite, metallurgical coke, coal bed methane gas, and other related products. Like most coal miners, Walter has had a very rough go of it in 2013. The stock is down more than 50% from its highs earlier in the year even as the stock has run up 80% from its recent lows.

Insiders have been substantial buyers throughout 2013, which has continued right through the stock's recent rise. Insiders have bought more than 100,000 shares in myriad transactions since May. There has not been a single sale of stock by insiders all year.

The stock has a nice run since bottoming in around $10 a share in late summer and now trades just over $18 a share. The company is also still losing money but should post better results in FY2014. In addition, Walter made from $5.50 to $7.25 a share annually in earnings in 2008, 2010 and 2011.

Any change of sentiment on this sector could boost Walter's fortunes significantly. This is the type of stock I love to play with out of the money bull call spreads. The Jan 2015 $25 to $35 call spread can be had for less than $1.50 which would pay off around six to one if the stock can recover to close to its highs earlier in this year by early 2015.

Freeport-McMoRan Copper & Gold (FCX) --The giant miner is up more than 10% since I last profiled the company positively in early September. However, insiders still are believers in the company's prospects based on recent insider buying.

Insiders have bought more than 1.5 million shares since my last article on Freeport. In addition, consensus earnings estimates have gone up more than 5% over the past two months as sentiment on Freeport and the mining sector is starting to improve. That is in part because Chinese growth seems to be accelerating.

Revenue growth should post a rise in the low double digits in FY2014 after posting almost 20% gains in FY2013. Even with recent rise in the stock, FCX sells for less than 12x forward earnings. Finally, the stock pays a generous yield of 4.3% while the sentiment around this sector continues to improve.

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.