10 Mid Caps to Rule Them All

Seeking out the 10 mid caps to rule them all is the only logical follow-up to seeking the 10 small caps to rule them all. Unlike small-cap companies that offer investors the potential for high-risk, high-reward returns, mid-cap companies usually have significantly less risk built in because of their proven business track records. These companies either offer distinctive products or exceptional value to investors – or possibly both.

For reference, here was last week's choice to kick off this series:

This week, I want to highlight a company that I touted as the best stock in 2011 nearly six months ago, Thompson Creek Metals (NYSE: TC  ) .

What it does
Thompson Creek Metals is looking to amass its fortune by being one of the premier suppliers of molybdenum -- a white metal often used to strengthen steel. Whereas countless mining companies are digging up gold and silver, Thompson is focusing on the practical applications of its minerals. Molybdenum may not be as sexy as gold in terms of tradability, but its practical applications are potentially more useful.

How it stacks up
There are two main drivers that will determine if Thompson Creek is successful: molybdenum spot prices and copper prices.

Precious metal pricing has a direct effect on the profitability of all miners, and Thompson Creek is no different. Molybdenum prices have recently been on the rise, and that bodes well for the company. Since 2009 moly prices have doubled, and they've risen by an additional 4% since the beginning of this year.

Copper prices will likely have a strong impact on Thompson Creek's future as well. With the acquisition of the Mt. Milligan mine from Terrane Metals last year, the company gained access to 2.1 billion pounds of copper reserves. Copper, like moly, is a ready-to-use asset, which puts Thompson Creek in the driver's seat of its own destiny.

It's not just that Thompson Creek has the materials to drive growth; it's that the company is head and shoulders above its competitors:

Company

Forward P/E

Cash/Debt

Thompson Creek Metals 9.5 $303 million / $20.5 million
General Moly (AMEX: GMO  ) N/A $64.3 million / $10.7 million
Freeport-McMoRan (NYSE: FCX  ) 7.8 $4.09 billion / $4.75 billion
Southern Copper (Nasdaq: SCCO  ) 9.2 $2.19 billion / $2.76 billion
MolyCorp (NYSE: MCP  ) 16.4 $492.5 million / $2.9 million

Sure you may find lower P/E ratios among its competitors, but in the case of Freeport-McMoran and Southern Copper, you'll pay the price of burdensome debt. MolyCorp may offer you a strong cash position, but are you willing to pay a 16-plus forward multiple when the rest of the sector trades at nearly half that level? General Moly shows promise, but at this point in time it's just burning through its cash pile. Thompson Creek is the clear leader of this bunch which leads me to my next point...

How it could make you money
We have had no shortage of natural disasters worldwide this year, and the rebuilding effort in Japan and around the globe will involve steel products -- steel likely alloyed with molybdenum. But Thompson's potential customers aren't just in devastated regions. In the United States and worldwide, the need to renovate aging bridges and infrastructure is growing. This creates an almost constant demand for steel and therefore, Thompson's products.

Copper will always play a large role in Thompson's future growth plans. Currently pegged to be in production sometime in 2013, Mt. Milligan will add diversity to Thompson's already profitable portfolio and should allow the company to take advantage of these near-record copper prices.

The thing to remember when investing in Thompson Creek is that you're buying into a practical use metal. No one ever said investing had to be sexy to be profitable -- certainly not Thompson Creek or myself -- but given the company's long-term prospects, it absolutely deserves a spot among my 10 mid caps to rule them all.

What's the skinny on Thompson Creek Metals? Share your wisdom in the comments section below and consider adding Thompson Creek Metals as well as your own personalized portfolio of stocks to My Watchlist.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's bent on digging up success.


Read/Post Comments (4) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 25, 2011, at 5:21 PM, PEStudent wrote:

    "...given the company's long-term prospects..."

    I wish the article would have done that, but it really hasn't presented the long-term prospects in terms of growth rates. You mention copper reserves, but you don't mention the quality of the ore - which may mean lots of bucks to buy flotation reagents.

    If reserves are important and copper is important, with regards to FCX, you fail to mention that it's the world's largest producer of copper, 19% of it's income comes from gold and that it owns the Indonesian mine with the world's largest reserves of gold.

    Yet you somehow, without presenting any data, come to the conclusion TC is "head and shoulders" above its competitors.

  • Report this Comment On May 25, 2011, at 8:51 PM, jmel2cruz wrote:

    Also forgot to mention that TC just took on new debt.

  • Report this Comment On May 26, 2011, at 4:16 AM, TMFUltraLong wrote:

    PEStudent,

    Ore data from Mt. Milligan can be found here:

    http://www.terranemetals.com/s/MtMilligan.asp

    TMFUltraLong

  • Report this Comment On June 22, 2011, at 8:31 PM, TSIF wrote:

    The new debt and warrants are weighing this one down hard. There are additional warrants due in a few months at $9.00. I've had a tough time riding this one and almost sold a few times on this 50% drop. I think we are in for a bottom bounce and I do believe they have good potential, so I'm holding here and may just dollar cost if we break below $9. Not one of my favorite tactics, but sometimes it works if you believe the issues driving it down are temporary. The potential here looks good. I won't turn my back on it for such a long period, however, in the short term.

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