Why 2012 Could Be the Year for North American Palladium

With 2012 just beginning, now's a great time to gauge how the stocks you're interested in are likely to do this year and beyond. By knowing what stock analysts and fellow investors expect from a stock, you'll be smarter about whether you should buy it for your portfolio -- or sell it if you already own it.

Today, let's take a look at North American Palladium (AMEX: PAL  ) . As I discussed last month, North American Palladium had a terrible 2011, as a drop in palladium prices raised fears that the precious metal's surge in recent years may be over. But an economic recovery might actually boost demand for palladium, potentially pushing the company's shares higher. Below, I'll take a closer look at what people expect from North American Palladium and its rivals.

Forecasts for North American Palladium

Median Target Stock Price $4.69
2011 EPS Estimate ($0.08)
2012 EPS Estimate $0.14
Expected Annual Earnings Growth, Next 5 Years 50%
Forward P/E 21
CAPS Rating ****

Source: Yahoo! Finance.

What will 2012 look like for North American Palladium?
Both analysts and investors have high expectations for North American Palladium. The target price for the stock is more than 50% higher than current levels, and a growth rate of 50% is a lot to expect. However, boosting production at its Sleeping Giant gold mine and its Lac des Iles palladium mine could help it meet those expectations -- especially if palladium resumes its upward climb.

Palladium's future prospects depend a lot on the car industry, and with an economic expansion, those prospects could be good. Even though Ford (NYSE: F  ) may no longer be a booming turnaround play, its continued success should help provide stability for the industry. General Motors (NYSE: GM  ) may actually be in the position Ford was in three years ago, as it takes its clean post-bankruptcy balance sheet and tries to rebuild its product lineup. And as Toyota (NYSE: TM  ) recovers from its recalls and Japan's earthquake, it should start to get back to its former glory. Demand for palladium for catalytic converters from these automakers is an essential ingredient of North American Palladium's future success.

As with rival Stillwater Mining (NYSE: SWC  ) , North American Palladium needs the metals markets to cooperate. Whether that support comes from autos or the jewelry industry doesn't really matter. The stock's recent drop reflects concerns about the palladium market -- but a reversal upward could easily bring the stock back up to its past levels, which are considerably higher than the current price.

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Click here to add North American Palladium to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors and Ford, as well as creating a synthetic long position in Ford. 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 Fool has a disclosure policy.


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Comments from our Foolish Readers

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  • Report this Comment On January 17, 2012, at 2:30 PM, wilmotl wrote:

    Nice predicition. Obviously not based on anyone actually visiting the plant or talking to anyone. These "no boots on ground" projections are worthless and as PAL drops 12% today alone, that is all the proof you need.

  • Report this Comment On January 17, 2012, at 4:55 PM, hksche2000 wrote:

    PAL's Sleeping Giant mine just put to sleep. The Fools look foolish. Sorry guys, we thought your assessments were based on more timely info.

    Furthermore, palladium is precious but apparently not precious enough for the auto industry. Cheaper catalyst materials seem to be taking its place. Since Pal's uses outside the catalyst industry are negligible, PAL's futures may be dim.

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