Although industrial metals don’t have the "glitter" of precious metals, several MoneyShow.com contributors are looking beyond gold and silver and see upside potential in lesser-followed metals such as aluminum, iron ore, copper, cobalt, molybdenum, zinc, borax, lithium and rare earth metals.

 

Mike Cintolo, Cabot Top Ten Trader

After a lackluster performance for the first half of 2017, we’re starting to see more metals and mining stocks perk up; here’s a look at three commodity companies that are getting support from an improving global economy.

Alcoa (AA) could be a big-cap leader of the group. Alcoa is a leading producer of aluminum and alumina, and business has perked up as the global economy has kept demand on the upswing. In the second quarter, the firm’s realized prices of aluminum and alumina were up 19% and 18%, respectively, from a year ago, and it’s looking like even higher prices are on the way.

Plus, it’s worth noting that other metals are also strengthening, so the accelerating global economy could be having more of an impact than many believe. The next year looks bright for Alcoa.

Arizona-based Southern Copper (SCCO) mines, smelts and refines copper and other metals and minerals from mines in Central and South America. Despite the company’s significant production of molybdenum, zinc and other metals, Southern Copper is a copper story and the company is doing well because copper prices are rebounding from their 2016 lows.

Copper is an economically sensitive commodity, and prices have been getting support from the improving strength of the Chinese economy, which is one of the major markets for copper, as well as a global rise in demand. With rising copper prices boosting earnings, analysts expect earnings to grow by 63% this year. If the global economy holds up, Southern Copper should continue to do well.

The last time Sociedad Quimica y Minera de Chile (SQM) appeared on our buy list was in 2011 when the big story was the company’s rights to the mineral deposits of the Atacama Salt Desert of northern Chile.

The story now is still the Atacama, but while fertilizers and iodine are still good revenue sources, it is lithium that’s driving the stock’s popularity. Lithium is the key element in lithium batteries. In a way, Sociedad Quimica is a back-door play on all the other aspiring electric automakers out there.

Analysts are looking for 51% earnings growth this year. With lithium batteries in the driver’s seat (and a globally constrained supply), Sociedad Quimica looks like a good bet.

 

Yiannis Mostrous, Capitalist Times

The best mining companies have made real progress to effectively control production output and costs while being more disciplined with capital and increasing payouts to shareholders. Geopolitical risks notwithstanding, cash flows are strong, deleveraging continues and demand remains stable. Profits have been improving, while the sector trades at a discount to the market on almost every metric.

Rio Tinto (RIO) is the stock to own in this industry. It is one of the world’s largest mining conglomerates, with major interests in copper, iron ore, coal, aluminum, mineral sands, borax, diamonds and gold.

Rio Tinto has one of the strongest balance sheets in the industry. As a result, and at current commodity prices, there could be an increase in dividends, a special dividend or buybacks -– all of which are positives for investors. The company doesn’t hedge its currency or commodity positions, yet consistently delivers high margins and cash flows. Rio Tinto has generated 7% free cash flow even during the low parts of the cycle. Currently, it’s generating around 10%.

This consistent and significant free cash flow yield isn’t a surprise. Management’s priority is cash flow growth instead of blind volume growth. And right now, the company trades at a discount, with EV/EBITDA at less than four compared to the long-term average of seven.

 

Tom Bishop, BI Research

Lithium-X Energy (LIXXF) is a lithium exploration and development company with a goal of becoming a low-cost supplier for the burgeoning lithium battery industry.

Lithium-X owns 100% of the Sal de los Angeles lithium brine project in the prolific Salta province of Argentina. It also now owns 19.9% of Pure Energy with 26,300 acres in Nevada’s Clayton Valley, contiguous to the only producing lithium operation in North America.

In addition, the company is also exploring its recently acquired Arizaro project located in one of the world’s largest and least explored salars thought to contain elevated lithium brine values.

The steep demand curve forecasted for all the lithium batteries required by all of the electric vehicles will drive future lithium demand and ergo lithium prices. Then there is demand for all other uses of lithium such as glass, ceramics and medicines, which is currently half of current demand. The demand for energy storage for alternative energy is another big and rapidly growing market.

The company is working on construction of its recently green-lighted initial ponding facility. It is also working on its feasibility study to expand. This is due by year-end. Based on the past history of management, the end game here should be the acquisition of the company.

 

Mary Anne and Pamela Aden, The Aden Forecast

Growth in emerging markets is boding well for commodities. In addition, hurricanes are disastrous, but in the long run they will be good for economic activity and for commodities as a result of all the rebuilding that will have to be done.

This will eventually provide a further boost to a bull trend that’s already underway. You can see that in the rise of the base metals.

Copper is soaring to a three-year high on better manufacturing activity in China. It remains in expansionary territory, which is most powerful for a strong resource sector turnaround. Copper’s bullish rise could reach the $4 level, near the record highs. Plus, the commodity index has formed a great base and it’s poised to rise. It could move up to the 2008 downtrend in a great bull market run. Commodities have a bright future, and we’ll likely soon add more resources to our portfolio.

For now, we recommend buying positions in the strongest metals and currently suggest purchase of Alcoa (AA) and BHP Billiton (BHP).

 

Jim Powell, Global Changes & Opportunities Report

Industrial metals are moving up. As long as the global economy remains relatively healthy — as is likely to be the case for many months — the demand for raw materials should stay strong.

The outlooks for aluminum, iron ore, and cobalt are especially good. My top recommendations for each of these metals are Alcoa (AA), Vale S.A. (VALE) and Glencore PLC (GLNCY).

The rise in price for aluminum is due largely to sharp cutbacks in production by China to reduce its serious air pollution. At the same time, demand for aluminum is rising throughout the industrialized world.

Both developments seem likely to continue. If you own Alcoa, there is no need to buy anything else to ride the aluminum upturn.

Iron, of course, is the principal ingredient in steel that is being used in increasing quantities throughout the world, especially in developing nations that are enjoying building and manufacturing booms.

Both cycles tend to be long lasting which should keep the demand for iron ore on an upswing until a recession ends the party. Of the many producers of iron ore, I think Brazil-based Vale S.A. offers investors the best outlook for gains.The company also produces manganese (another important ingredient in steel) and nickel; it is also the world’s leading producer of cobalt and quite a bit of the world’s nickel.

Cobalt, in particular, is a critical element in the production of lithium batteries in electric cars and many other battery-powered devices, applications that consume 42% of production. Some energy analysts are predicting a 30-fold increase in cobalt demand within 10 to 15 years, which should send its price into the stratosphere. This is a hot new metal play that few investors know about.

 

Mark Skousen and Jim Woods, Fast Money Alert

Gold attracts a lot of attention. However, when it comes to metals, the bullish trade is not just about being risk-off. In fact, some metals move higher when the global economy booms and when the longer-term view of global growth seems bullish.

A lesser-known segment of the metals market is rare earth elements, more commonly known as rare earth metals. Rare earth metals, as measured by the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX), are up 40% year to date.

This move is reflective of the limited supply of rare earth metals, the difficulty in extracting these compounds from the ground and the demand they’re getting from a variety of high-tech industries.

Now, if you aren’t familiar with rare earth metals that is certainly understandable. They aren’t exactly household names.

However, we’d be surprised if you didn’t have some rare earth metals in your pocket, on your desk, or at your home right now. Rare earth metals can be found in nearly every cellular phone, electronic device, computer, etc.

And it’s not just certain electronic devices that use rare earth metals. They are in demand in countless other ways, and that demand is only expected to increase in the years ahead.

Right now, the fast money has been roaring to get a foothold in rare earth, and we know that based on the recent surge in the share price of this fund. Take advantage of this trend and buy the VanEck Vectors Rare Earth/Strategic Metals ETF.

 

 

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