Global markets are once again reeling thanks to a number of political issues. Emerging markets are under pressure thanks to a variety of protests, while developed markets in Europe are facing uncertainty thanks to more debt concerns.
This trend has led to devastating consequences for a variety of commodity producers, as the dollar has strengthened against a number of global currencies. Plus, many key markets such as China could see reduced demand levels in the months ahead, further adding to commodity producers’ woes.
In particular, gold and silver miners have seen weakness in this environment, falling by well over 45%, as represented by the Gold Mining ETF (GDX), since the start of 2013. Yet, while many investors have been laser-focused on the precious metal market, there has also been significant weakness in the base metal world as well.
Companies in this space have been hit hard by the same issues of a strong dollar and sluggish international demand, and could thus be ones to avoid as well. One firm in particular that could struggle in this environment is Southern Copper (SCCO).
Southern Copper in Focus
SCCO is a major U.S.-based producer of copper in key Latin American countries, but especially in Peru and Mexico. The firm mines over one billion pounds of copper—for the last full year—while it smelts and refines a similar amount as well.
The company saw soaring stock prices for much of 2012, although the firm did see extreme price volatility. However, the stock has since cratered in 2013, falling by about 30% in the first half of the year.
This slump has been largely due to two key factors; the weak outlook for copper, and the low earnings growth projections for the firm by analysts. In fact, current projections are looking for a year-over-year earnings contraction of 20% for the full year period, with similar double digit contractions for the current quarter and next quarter periods too.
Analysts have also taken down their estimates of the company in recent weeks, as not a single estimate has gone higher in the past 90 days. The current year earnings consensus is now just $2.04/share, a far cry from the $2.63/share that analysts were expecting 90 days ago.
Thanks to this trend, SCCO has earned itself a Zacks Rank #5 (Strong Sell), suggesting that it will underperform in the near term. And with the sluggish outlook for copper for the rest of 2013, it seems like it will be difficult for SCCO to break out of its slump and push higher, especially considering the falling earnings expectations.
It is hard to find a good play in the Zacks Industry of Mining non-Ferrous metals, as the industry currently has a rank of 247 out of 261. In fact, in our five mining industries, there are only two #1 Ranked stocks; Brigus Gold (BRD) and Impala (IMPUY).
Both of these are in struggling industries, but they have proven to be best-in-class thanks to improving earnings estimates. Plus, both have seen their ranks surge from holds (or worse) up to strong buy territory, suggesting either of these names might be better picks than the struggling SCCO at this time.
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