CAPS Investors Won't Budge on These 5 Stocks

Investors in commodity stocks have no doubt felt like captains going down with their ships lately. Fools, however, remembered to bring their scuba gear, and remain steadfast in their support of certain stocks that they believe are destined to set sail once more.

To locate commodity-related stocks with the most unwavering support from CAPS members in the face of these dramatic share price declines, I used the multitalented stock screener at Motley Fool CAPS. The search criteria were Foolishly simple:

  • Sector: Basic Materials.
  • Outperform picks by at least 250 CAPS All-Stars and 1,000 members overall.
  • Shares trading at least 50% below 52-week high.
  • Awarded the highest possible CAPS rating of five stars both today and six months ago, before the notable commodity correction began to unfold in March.

Company

Price

% Below 52-Week High

CAPS Outperforms

All-Star Picks

P/E

Vale (NYSE: RIO  )

$22.28

52.52%

5,248

819

9.5

Southern Copper (NYSE: PCU  )

$20.64

58.40%

3,647

746

9.7

Petroleo Brasileiro (NYSE: PBR  )

$41.75

50.47%

2,882

443

15.4

Titanium Metals (NYSE: TIE  )

$12.03

68.43%

1,595

336

10.6

Northgate Minerals (AMEX: NXG  )

$1.29

60.45%

1,394

256

8.4

Data from Motley Fool CAPS and Yahoo! Finance as of Sept. 10, 2008.

I find it Foolishly intriguing that the above stock screen returned exactly one company relating to each of the following products: iron ore, copper, oil, titanium, and gold. Since CAPS members have refused to turn their backs on these companies despite some very hefty losses, one could argue that these companies are the darlings of the CAPS community within their respective businesses. With the exception of titanium, I happen to be bullish on each of these commodities, and it looks as though I'm not alone. Keep in mind, however, that screen results are merely a starting point for further research.

The stock with an iron constitution
While spot prices for iron ore have indeed declined, there are two important factors to keep in mind. First, although competitors Rio Tinto (NYSE: RTP  ) and BHP Billiton (NYSE: BHP  ) are leading a shift away from reliance on the traditional benchmark pricing system, Vale retains its role as the principle price-setter for the industry, and is presently seeking yet another price hike for sales in Asia. Second, spot market prices remain higher than the benchmarks, even in light of the broader commodity price collapse.

To be sure, Vale is more than just an iron ore company, and exposure to nickel production following the 2006 acquisition of Inco has undoubtedly factored into the recent share price decline. That didn't stop CAPS member Sqwii from getting downright giddy back in June about Vale's prospects:

[F]or the next 5 yrs. avg annual growth estimates are around 35%...these are all tell-tale signs that this company will be extremely valuable in the long term. … They even have some great news that just came out about a week ago...they are building a $1 billion dollar pellet plant in Oman as the Middle Eastern steel industry continues to explode. I dont want it to seem like im going for the hard sell or w/e but this company honeslty gets me excited … I cant wait to see where this stock goes.

I can't wait either, Sqwii, and I find the recent revelation about the company's desired foray into steel manufacturing to be pretty exciting as well. The one thing every Fool would like to know about Vale, though, is what it will finally buy with that stash of cash it's sitting on.

While copper has declined 20% after peaking above $4.00 per pound in early July, the shares of major copper miners have been pushed even lower. In fact, since July 9 when I suggested that Southern Copper shares were looking cheap, the stock has plummeted more than 30%. You can imagine how cheap I think the shares are now! CAPS member TepperJason agreed a month ago:

With the way [Southern Copper] and [Freeport-McMoRan] have been dropping since the beginning of July you'd think that India and China fell off the face of the earth. Here's a newsflash: India and China's growth is real and it's here to stay. Cut out the walls in your house or office building and just look at how many items are made of copper... [Southern Copper] pays a 10% dividend at this level. It hasn't been this inexpensive for a couple years. Buy it and enjoy the 10% dividend while you wait for the rebound.

With a dividend yield now more than 11%, a forward P/E under 7, $1.25 billion in cash on hand, and more than 700 CAPS All-Stars lending their approval, I feel this copper miner deserves a close inspection by the rest of Fooldom.

Further Foolishness:

As good as the stock screener tool at Motley Fool CAPS is, it's the people in the community that make the site an amazing online destination for sharing investment ideas. Sign up today and give CAPS a spin. It's totally free.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of BHP Billiton, Freeport-McMoRan, Northgate Minerals, and Vale. Petroleo Brasileiro is a Motley Fool Income Investor recommendation. The Motley Fool has a disclosure policy.


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