During bull markets, often the best way to trade is to go with
the momentum. That's usually the route I like to take, but
there's another way to trade that can also net you big
That is to identify sectors that have come under fire that
have the potential to move much higher -- that is, value trades.
The multi-national industrial mining sector fits this bill.
One great way to invest in this sector is with
iShares MSCI Global Metals & Mining Producers (NYSE:
. This exchange-traded fund (
) holds the biggest industrial mining companies, including
BHP Billiton (NYSE:
Freeport-McMoRan Copper & Gold (NYSE:
Rio Tinto (NYSE:
Although PICK is down 12% year to date, the fund has seen some
strong buying during the past four months, rising 27% since its
July 5 low.
The reason for the buying in the industrial metals sector of
late is partly due to the general rebound in global stocks, but
it is also partly due to the global economic recovery thesis
centered around China. Solid GDP data and good manufacturing
numbers out of that country, one of the biggest consumers of
industrial metals such as iron ore and copper, have created a bid
higher for PICK.
Also helping the bullish case recently was news from Codelco,
the world's biggest copper producer, which said it was poised to
raise the fee it charges Chinese buyers to the highest level
since 2005 due to increasing demand. Adding fuel to the global
metals growth thesis this month was
Goldman Sachs (NYSE:
, which upgraded the steel sector to "neutral" from "cautious."
Then, we saw Jefferies deliver a positive report on
fourth-quarter iron ore demand from China.
The Goldman report basically was a valuation thesis, similar
to mine, as analysts argued that all the bad news was priced into
stocks in the space. The more subtle and intriguing thesis,
however, was the Jefferies call.
The firm attributed some of its bullishness on iron ore to
impending construction of affordable housing in China. The report
also said that recent surging Chinese property prices aren't so
much the result of a speculative bubble as they are the
reflection of a lack of housing capacity.
The lack of capacity inflates prices for existing homes, and
that's not something the Chinese government wants to see take
place. One way to remedy this situation is to build more
affordable units, and that's what Jefferies says will take place
"Interestingly, this increased demand comes at a time when
iron ore supply usually dips," said Tom Essaye, editor of The
7:00's Report. "The bottom line is we're seeing more anecdotal
evidence of a 'turn' in the industrial metals and for industrial
metal miners, and the space still remains a value."
I agree with this thesis. If you want to take advantage of the
aforementioned confluence of positive catalysts in the industrial
metals and mining space, PICK is a good bet.
Action to Take -->
-- Buy PICK at the market price
-- Set stop-loss at $18.79, about 7% below the current price
-- Set initial price target at $23.50 for a potential 15% gain in
This article was originally published on
This Value Play Could Score Traders 15% Returns
by Early 2014
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