I'm looking to put more money to work but with the Dow hitting all time highs I've been a little skeptical and have been waiting on a pullback. . I've been researching a handful of stocks and keep being pulled back to add to my SCCO position. I don't need a home run, just a bunch of singles will get me to where I want to be.
On the 8k, SCCO is expanding capacity from 640,000 tons to 1,175,000 tons in 2017. Extrapoliting this out with a copper at $3.50/lb, I get $9,066,417,500 in copper revenues. 75.7% of SCCOs revenue was from copper meaning that in 2017 expected revenue will be just short of $12B. At a 29% profit margin (2012's rate) and an average shares outstanding 848,836,000 (from 10k), I get projected 2017 EPS of $4.09. Putting a 14 P/E on this gives me a stock price of $57.32. A 53% return from today's price plus the dividents.
I'm trying to be a little conservative on my assumptions. Average copper price in 2012 was $3.61/lb. 29% profit margin is lower than it has been the past 3 years. Taxes aren't an issue as SCCO stock is in my roth.
I don't want to beat a dead horse, but assuming all your numbers are spot-on I think you may be missing one tiny thing ..... what's going to happen in China in the next couple years (re. bubble) and if it does what will be the ripple effect.
Assuming you already have a hefty position in SCCO, you might want let that ride and look in a different direction for your adds. We do know that the Asians like to smoke, drink and gamble but if they're broke you might want to stick to the smoking and drinking and, if the worst happens there may be a lot of other folks may take-up a little drinking. MO, PM, BEAM, etc. might be nice places to look.
Thanks ROG, i already have MO and PM. Im a divident hound. Bought before the PM split and bought more at an avg of 18/ shr. Earning almost 10% div yield right now. My SCCO position is not that large compared to my MO position. Me thinks the Groupo Latinos know more than we do if they are willing to put expand capacity this much. Remember there are more countries than China expanding. think Brazil with the World Cup next year and the Olympics soon.
A decent though too simplistic attempt at original thinking......something in very short supply here.
I would make two changes to a most rough estimate. First, the new production is marginal tons. A slightly increased fixed overhead gets spread over many more tons, thus a much lower cost per incremental pound.
Next, the price of copper could well be 2.50 per pound since scco ain't the only copper miner with big expansion projects in the pipeline.
On the other hand, scco is one of the lowest if not the lowest net cost per pound producers. Whatever the price, scco can profitably produce while other miners shut unprofitable mines.
As I have posted many times, the only reasons I will sell my core position is if somebody invents a better mousetrap for copper or scco does something real stupid, like buying JC Penny.
I am more worried about the USA than China. The whole world economy could collapse just because of the USA's debt and Obama's out of control spending. Add inflation to that and people stop buying. That could put a pinch on China since we buy everything from them. If push comes to shove and we have a choice between high priced food and high priced discretionary items, what will we buy? Food. When could a collapse happen? Anytime between now and never. My policy is to invest with caution, invest in quality stocks, and be ready to sell at any moment. If I listen to the naysayers, I will sit on the sidelines in cash and miss out on growth opportunities. So, it is a #$%$ shoot either way. I like SCCO and I am buying in the dips.
I do not want to politicize this board but let's get real here:
Is Obama's spending an issue - absolutely
Was the spending an issue under the previous administration - absolutely
Both parties are to blame for this deficit but no one wants to be held accountable. Do I agree with current administration policies - no but there were many Bush policies I didn't agree with too (an unfunded Medicare bill inparticular)
It's a short-sighted "do anything to get re-elected kick the can down the road mentality" on the Hill at the expense of you and I by both parties.