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So far, it looks like my pick for Best Stock in 2011 is a dud -- or at least, it has been since I wrote about it back in January. Shortly after I highlighted the bullish points about Thompson Creek Metals (NYSE: TC ) , it peaked above $16 and began what has been a steady decline to less than $12. Given the 25%-plus haircut shareholders have endured in just the past two months, I was left wondering whether there was something wrong with Thompson Creek.
After researching the news driving this stock, I can honestly say that there aren't any underlying problems. In fact, Thompson Creek looks like as strong a buy as ever.
Thompson Creek's business revolves around molybdenum -- the white metal that when added to steel products makes them significantly stronger. Earlier in the year, the company forecast claimed that molybdenum prices could gyrate dramatically, but affirmed that the overall trend should be higher. So far Thompson's call has been correct, minus the gyrations. Since mid-December, the price per pound of molybdenum oxide has jumped by 6.2%, while its expense per pound in the fourth quarter dropped 12.1%. This looks like the perfect combination for Thompson Creek to produce significantly higher margins.
Thompson Creek has also come under selling pressure because copper is trading at a three-month low. If you recall, one of my bullish points on Thompson Creek was its recent purchase of Mount Milligan through its Terrane Metals acquisition, which grants the company roughly 2.1 billion pounds of copper reserves. Although production isn't slated to begin until 2013, this hasn't stopped it from trading down in sympathy with the rest of the copper sector. Freeport-McMoRan (NYSE: FCX ) and Southern Copper (Nasdaq: SCCO ) have shed 22% and 23%, respectively, from their highs in January.
The thing to remember is that copper, while down from an all-time high of $4.65 a pound, is still trading well above its historical average. It's an extremely lucrative time to be mining or own mines involved in copper production, and nothing has intrinsically changed here since January. China continues to be a net importer of copper, and as long as China's GDP is expected to grow near double-digit rates, I continue to see nothing but bullish prospects for Thompson Creek.
We have to remember that Thompson Creek is a long-term metals play. I didn't expect it to appreciate overnight, but my own impatience is weighing on me. My bullish perspective from the beginning of the year is still perfectly valid, and molybdenum prices have moved even more in Thompson Creek's favor. I'm going to give Thompson Creek a clean bill of health and let the fundamentals do all of the talking from here on out.
What's your take on Thompson Creek Metals? Do investors have a reason to be cautious about falling copper prices, or have they simply overreacted to a still-bullish market? Share your thoughts below and consider tracking my top stock for 2011 with our free and easy-to-use My Watchlist.
- Add Thompson Creek Metals to My Watchlist.