A low price doesn't automatically mean a stock is a good deal. Buying Berkshire Hathaway at $260,000 a share is still a better bet than just about any penny stock. But when you can combine a superior business with a discounted price, then investors should sit up and take notice.
Investing isn't all about the Hamiltons, but if you have a $10 bill sitting in your wallet looking for a place where it can potentially grow into a Jackson or even a Benjamin, check out Arcos Dorados (NYSE:ARCO), First Majestic Silver (NYSE:AG), and Vale (NYSE:VALE). They were all trading for less than a sawbuck at the time of writing and have the possibility for being worth a lot more in the future.
The world's largest McDonald's (NYSE: MCD) franchisee, Arcos Dorados, has been more than a few fries short of a Happy Meal lately because of the woes of various Latin American economies. That includes Brazil, its largest market, representing almost half of its total revenue, but also Venezuela, due to financial pressures there. Finally, Argentina is doing Arcos no favors with its currency issues. On a GAAP basis, those factors caused the restaurant operator to report a 7% decline in revenue over the first nine months of its fiscal year, but on a constant-currency basis, they're up almost 14%.
Arcos Dorados, which means "golden arches," has been a volatile stock. But after hitting its all-time low in early 2016 following the cancellation of its dividend as it sought to shore up its finances in the face of recessionary Latin American markets, it has since climbed some 140% and should be able to continue its march higher.
McDonald's itself is in an appreciably stronger position than where it was a year ago, and Arcos Dorados was able to report a 6.3% increase in comparable sales in Brazil in the quarter; a 5.6% rise in comps in northern Latin American markets, particularly Mexico; and a 25% increase in southern Latin American markets.
Currency exchange rates are still going to wreak havoc with the fast-food chain's operations in the short term, but over the longer haul, Arcos Dorados should still be a golden opportunity.
First Majestic Silver
These days it's harder to find a true silver miner because so many are relying instead upon gold and base metals for the majority of their revenue. Coeur Mining, Pan American Silver, and Hecla Mining are among the leading silver miners relying on something other than silver for their wealth.
Not so with First Majestic Silver, which alone of the major silver miners still relies on the grey metal for around 70% of its revenue, ahead of rivals like streaming giant Silver Wheaton, which gets less than 60% of its revenue from silver.
As largely a pure play on the metal, First Majestic will be subject to the vagaries of silver's price fluctuations, which has caused its stock to range all over the place. After hitting a high of over $19 a share last August, it tumbled 60% afterward and then bounced some 50% higher off those lows. It was down again over the past month, but the news the Federal Reserve is raising interest rates caused its stock to spike nearly 10%.
First Majestic suffered from lower production at a number of its mines in the fourth quarter, including a big 17% drop at La Encantada and 9% at La Guitarra, though for the full year it achieved record production of 18.7 million equivalent ounces, a 16% jump over 2015. It expects production and grades to improve as the year goes on and various projects advance. Because political and economic uncertainties still abound, precious metals will likely continue to have upward pressure behind them. Silver is going higher, and as First Majestic Silver expands production at existing mines and brings new projects online, it will be in line to gain, too.
Analysts have been betting against the longevity of the iron ore rally since it began in December 2015. Heck, even the executives of the miners themselves didn't think it would have the legs it did, but with China buying about two-thirds of global seaborne iron ore, the rally has been extended. Steel demand is going to be the primary factor.
Because iron ore is the key ingredient in making steel, elevated steel prices will also help buoy iron ore pricing well into 2017 and perhaps beyond. But there are debates about whether steel demand in China will actually rise or fall, though Japan's biggest steel maker, Nippon Steel, is looking for stabilization for at least a year and wants to raise steel prices beginning in April. .
Iron ore prices just blew through the $90 per tonne level, with the price of iron ore at China's port of Tianjin, the industry benchmark, surging to $92.10 a tonne, up 4% on the day.
That should benefit iron ore miner Vale as its S11D mine at Carajas in the Brazilian Amazon, one of the world's biggest and lowest-cost iron mines, started commercial production this past December. Vale anticipates it will reach full capacity by 2018, so not only does it increase the miner's overall production levels, it also helps lower its costs.
Still, according to Global Mining Research, over the next five to 10 years some 170 million tons of capacity will be lost to aging mines or those where the easy, premium grades have diminished. That suggests long-term trends point to iron ore being a premium-priced product for years to come.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool owns shares of Arcos Dorados, Companhia Vale, and Silver Wheaton. The Motley Fool has a disclosure policy.