• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Markets
  3. / Commodities
  4. / Gold

Consider Digging for Gold and Other Treasures

After being out of favor for years, mining companies are now fairly hot commodities.
By JOHN REESE
Sep 22, 2011 | 10:00 AM EDT
Stocks quotes in this article: RIO, VALE, CLF, FCX

The Institute for Supply Management (ISM) recently published its August 2011 report, which found that, led by the mining industry, economic activity for 10 non-manufacturing industries increased. Another five industries contracted. According to the report, the non-manufacturing sector grew in August, making it the 21st consecutive month it has done so

Mining reported not just overall growth, but increases in new orders, new export orders and employment. The products of mining companies, such as copper and iron, have seen strong demand in recent years. The head of Rio Tinto's (RIO) iron ore operations was recently quoted as saying in MarketWatch, "World iron ore prices remain 'damn good' despite recent modest declines, and speculation about a rapid buildup in supply to the world market is overstated ..."

Mining companies, which have been out of favor for years, are now fairly hot commodities themselves, and you would do well to consider including mining stocks in your investment portfolio. Right now, the guru strategies I use to identify promising investments (these are computerized analyses based on the strategies of renowned investors) like three mining companies.

Vale S.A. (VALE) is the largest iron ore producer in the world and the second largest nickel producer. This Brazilian company operates in 38 countries, and produces a wide range of metal ores in addition to iron and nickel, including copper, alumina and manganese, as well as coal. I have a strategy I modeled on Peter Lynch's writings, and it uses the PEG ratio, which is the price-to-earnings ratio in respect to growth. This measures how much the investor pays for growth given the stock's current price. A PEG of 1.0 or less is acceptable and 0.5 or below is excellent. Vale is well into excellent territory with a PEG of 0.28, based on its P/E of 5.63 and its growth rate of 20.12%, which comes from averaging the three-, four- and five-year historical EPS growth rates. In addition, inventories are being well managed and debt is at a reasonable level.

Another Lynch favorite is Cleveland-based Cliffs Natural Resources (CLF), the largest iron ore producer in North America, which has been in business since 1850. Using the three-, four- and five-year historical earnings-per-share (EPS) growth rate of 32.55% and a P/E of 6.84, Cliff has a very impressive PEG ratio of 0.21 and its inventories are well managed.

The world's largest publicly traded copper company, Freeport-McMoRan (FCX), is also the world's largest producer of molybdenum and a significant gold producer. The company is headquartered in Phoenix, and it is a favorite of my Joel Greenblatt-based strategy. This strategy ranks companies by their earnings yields and ranks each company using all the stocks in our database. Freeport ranks 22. It then ranks companies on the basis of return on total capital, and here Freeport ranks 195. The final test of this strategy ranks each stock based on the combination of its rankings from the first two criteria, and among all the stocks in our database, Freeport ranks an excellent 27. You don't have to dig deep to be impressed by this mining giant.

All of these companies are well managed and well priced, and their industry is doing well, as the ISM study shows. They are all strong performers and worth your consideration.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, John Reese and his clients were long Vale and Freeport-McMoRan, although positions can change at any time.

TAGS: Commodities | Markets | Gold

More from Gold

What Lies in Store for the Market in the First Quarter of 2021?

Maleeha Bengali
Jan 19, 2021 9:34 AM EST

It's easy to get caught up in the inflation trade, but it's also important to know how best to play that.

Unpopular Opinion: The Bitcoin Rally Is on Its Last Leg

Carley Garner
Jan 8, 2021 2:00 PM EST

The risk of being long and wrong in the cryptocurrency is real.

3 Breakout Candidates Living in the Materials World

Ed Ponsi
Jan 7, 2021 8:30 AM EST

The charts of U.S. Steel, Freeport-McMoRan and DuPont suggest that the surge in their shares may have just begun.

Markets React to Georgia Elections, Banks and Industrials to Gain, Oil Reduced

Stephen Guilfoyle
Jan 6, 2021 7:24 AM EST

I will have to give some of my favorite tech names a haircut in the name of balance. Hopefully everyone gained some exposure to gold.

Stocks and Commodities Are Flush With Irrational Exuberance

Carley Garner
Jan 5, 2021 1:30 PM EST

At some point, the piper will need to be paid. And that day might be sooner than some believe it will be.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:35 AM EST GARY BERMAN

    Thursday Morning Fibocall for 1/21/2021

    SPX (Long-Term View) The 1/20/21 NEW high @ 3859...
  • 11:38 AM EST CHRIS VERSACE

    Best Stocks to Buy for the Biden Presidency

    President-elect Biden's massive stimulus plan, int...
  • 08:07 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 1/20/2021

    SPX (Long-Term View) The 1/8/21 high @ 3826.69 i...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

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

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.

FactSet 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.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login