|Bid||0.00 x 1100|
|Ask||0.00 x 800|
|Day's Range||27.70 - 28.28|
|52 Week Range||25.06 - 39.62|
|PE Ratio (TTM)||N/A|
|Beta (3Y Monthly)||1.50|
|Expense Ratio (net)||0.35%|
Alcoa: Could There Be a Surprise in Its Q4 Earnings? In the previous part, we noted that Alcoa’s (AA) 2019 earnings estimates look elevated. Aluminum prices (RIO) are hovering near $1,800 per metric ton, while the Alumina Price Index is ~$400 per metric ton.
Alcoa: Could There Be a Surprise in Its Q4 Earnings? ## Alcoa Alcoa (AA), the leading US-based aluminum producer (XME), is scheduled to release its fourth-quarter earnings on January 16 after the markets close. Overall, 2018 was a terrible year for metal and mining companies. Alcoa wasn’t an exception. As aluminum prices fell amid concerns about China’s slowdown, aluminum producers, including Alcoa and Century Aluminum (CENX), also fell sharply. ## Aluminum prices Aluminum prices were volatile last year. In April, prices rose to multiyear highs following the RUSAL sanctions. However, we saw a sharp sell-off in aluminum after the sanctions were relaxed. The RUSAL sanctions could be waived after the company restructured its board towards the end of 2018. Alumina held the baton for volatility last year. Alumina saw several wide price swings. From the RUSAL sanctions to the curtailment of Norsk Hydro’s Alunorte refinery, a series of disruptions hit alumina markets (AWC) (S32). ## Fourth-quarter earnings While 2018 was a somber year for Alcoa, the company managed to generate a surprise in its third-quarter earnings. Alcoa posted better-than-expected earnings and announced a $200 million share buyback during its earnings release. The move led to a sharp rally in Alcoa’s stock after its third-quarter earnings release. However, we saw weakness in Alcoa in the fourth quarter amid the broader market sell-off. In this series, we’ll see what analysts expect from Alcoa’s fourth-quarter earnings. We’ll also discuss how analysts view Alcoa ahead of its fourth-quarter earnings release. Continue to Next Part Browse this series on Market Realist: * Part 2 - Alcoa: 2019 Might Be the Real Test * Part 3 - Alcoa Stock: Analysts Might Be a Little Too Optimistic
Some sectors are not geared toward all investors. The materials sector, the smallest sector weight in the S&P 500 Index at just 2.73%, is one of those groups. But the materials' size in the S&P 500 and other broad benchmarks is not the issue. Rather, materials is a cyclical sector, meaning its volatility can be more comparable to other cyclical groups, such as energy and industrials. Materials stocks often show correlations to commodities prices, making the sector vulnerable to swings in the dollar and the global economic cycle. Said simply, the materials sector is not a defensive sector. Additionally, the materials sector is unlikely to weather broader market declines. If anything, the sector is likely to perform worse than the broader market during bearish environments. As broader benchmarks slipped last year, the Materials Select Sector Index tumbled nearly 15% for the year, or more than triple the 2018 loss incurred by the S&P 500. InvestorPlace - Stock Market News, Stock Advice & Trading Tips * 7 Stocks at Risk of the Global Smartphone Slowdown For the adventurous and risk-tolerant, exchange-traded funds (ETFs) might be the way to go about picking stocks in the materials sector. Here are some of the best materials ETFs to invest in if the sector bounces back. ### Materials Select Sector SPDR (XLB) Expense ratio: 0.13% per year, or $13 on a $10,000 investment. The Materials Select Sector SPDR (NYSEARCA:XLB) tracks the aforementioned Materials Select Sector Index and is the largest materials ETF in the U.S. XLB, which is more than 20 years old, "seeks to provide precise exposure to companies in the chemical, construction material, containers and packaging, metals and mining, and paper and forest products industries," according to State Street. As a cap-weighted ETF tracking a relatively small sector, there is some concentration risk with this materials ETF. Just two stocks - DowDuPont Inc. (NYSE:DWDP) and Linde Plc (NYSE:LIN) - combine for over 36% of XLB's roster. Overall, this materials ETF holds 25 stocks. Source: Shutterstock ### Fidelity MSCI Materials ETF (FMAT) Expense ratio: 0.084% per year Keeping with Fidelity's rapidly growing tradition of being a low-cost leader, the Fidelity MSCI Materials ETF (NYSEARCA:FMAT) is the currently the cheapest materials ETF on the market. Like XLB, FMAT is a cap-weighted materials ETF. That does not mean the returns generated by these two rivals will mirror each other. FMAT holds nearly 120 stocks, giving it a significantly larger lineup than XLB, meaning these materials ETFs are likely to offer varying returns from year-to-year. That was the case in 2018 when FMAT slid 17.40%, a performance that was 250 basis points worse than XLB's. * 7 Stocks to Buy That Are Run By Billionaires Like the rival XLB, FMAT is top heavy, allocating over 37% of its combined weight to DowDuPont and Linde. Source: Shutterstock ### Invesco S&P 500 Equal Weight Materials ETF (RTM) Expense ratio: 0.40% per year For investors looking to mitigate the single stock risk often associated with the materials sector the Invesco S&P 500 Equal Weight Materials ETF (NYSEARCA:RTM) is the materials ETF to consider. Regardless of sector, equal-weight ETFs typically feature smaller average market values among the underlying holdings than cap-weighted funds. The average market capitalization of RTM's 25 holdings is $25.69 billion compared to $48.33 billion for XLB's holdings. Despite the tilt toward smaller companies, that trait does not ensure RTM will perform worse than cap-weighted rivals when the materials sector slides. Last year, RTM actually performed slightly less poorly than the cap-weighted XLB and FMAT. RTM also has a value feel as over 51% of this materials ETF's holdings are classified as value stocks. None of RTM's holdings have weights exceeding 4.30%. ### SPDR S&P Metals & Mining ETF (XME) Expense ratio: 0.35% per year The SPDR S&P Metals & Mining ETF (NYSEARCA:XME) is a more tactical materials ETF, offering investors the potential for larger rewards - and greater risk - than rival materials ETFs. Home to nearly $512 million in assets under management, XME "seeks to provide exposure to the metals & mining segment of the S&P TMI, which comprises the following sub-industries: Aluminum, Coal & Consumable Fuels, Copper, Diversified Metals & Mining, Gold, Precious Metals & Minerals, Silver, and Steel," according to State Street. XME is also an equal-weight ETF and its 29 holdings definitely toward the smaller end of the market capitalization spectrum as evidenced by an average market value of $4.64 billion. This materials ETF is heavily allocated to steel, coal and aluminum producers. * 5 Big Turnaround Stocks to Buy Now Those are volatile corners of the materials sector, meaning XME cannot endure simultaneous weakness in those industries. XME's vulnerabilities to weakness in those segments was on display last year when the materials ETFs shed almost 27%. ### First Trust Materials AlphaDEX Fund (FXZ) Expense ratio: 0.64% per year Beyond the equal-weight materials ETFs highlighted here, there are other smart beta approaches to this sector. The First Trust Materials AlphaDEX Fund (NYSEARCA:FXZ) is one of those funds. FXZ follows the StrataQuant Materials Index. That index targets materials names from the Russell 1000 Index based "on growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets," according to First Trust. FXZ's weighting scheme is undoubtedly unique relative to other materials ETFs and its annual fee is undoubtedly high compared to the category average. Neither trait means FXZ is a "good" materials ETF as highlighted by the fund's 2018 decline of 22.60%. FXZ holds 51 stocks with a median market value of $6.89 billion and this materials ETF trades at steep discounts relative to the broader market as highlighted by a price-to-earnings ratio of just over nine. Todd Shriber does not own any of the aforementioned securities. ### More From InvestorPlace * 2 Toxic Pot Stocks You Should Avoid * 10 Stocks You Can Set and Forget (Even In This Market) * 10 Virtual Assistants for the Future of Smart Homes * 7 5G Stocks to Buy as the Race for Spectrum Tightens Compare Brokers The post 5 Maybe-Marvelous Materials ETFs to Invest In appeared first on InvestorPlace.
In this article, we’ll do a comparative analysis of steel companies’ valuations based on forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization). U.S. Steel (X) has a forward EV-to-EBITDA of 2.9x its 2019 consensus EBITDA and 3.4x its 2020 consensus EBITDA. The stock’s forward valuation multiples are the lowest among the steel stocks that we’re covering in this series.
Most of Gundlach’s 2018 Calls Were Spot On—What about 2019? ## Assessing Gundlach’s predictions So-called bond king Jeffrey Gundlach, who is also the CEO of DoubleLine Capital, made his predictions for 2019 on a variety of topics, including debt markets, stock markets, Bitcoin, the state of the economy, and interest rates, in his annual “Just Markets” webcast on January 8. Before we look at what Gundlach expects for the year ahead, let’s have a look at what he predicted last year and how many of those predictions actually came true. ## Stock markets to turn negative One of Gundlach’s key calls for 2018 was that the equity market would end the year in negative territory. He said it would be completely different from what we experienced in 2017 and that it was payback time. In December 2018, Gundlach said, “I’m pretty sure this is a bear market.” He also said he expected the S&P 500 to fall below the lows it hit early in 2018. These predictions came true, and December turned out to be the worst December for markets since 1931. The S&P 500 (SPY), the Dow Jones Industrial Average (DIA), and the NASDAQ Composite Index (QQQ) fell 6.3%, 5.7%, and 1%, respectively, in 2018. Gundlach was also right about emerging market equities (EEM). He suggested that it isn’t a good time for traders to be buying them, but long-term investors might benefit. The MSCI Emerging Markets Index fared much worse than US markets. In April, Gundlach described Bitcoin as the current dot-com bubble. He also said that Bitcoin had rallied and peaked in 2017 along with equity prices. Bitcoin prices have been mostly falling since peaking in December 2017. ## Some misses However, Gundlach wasn’t right on all his predictions. His expectations regarding a big downside in the US dollar (UUP) didn’t come true. Moreover, he was very bullish on commodities (XME) (XLE) and even said, “What I mean by massive is not a 30% gain, it is 100%, 200% or even 400%.” This prediction also didn’t come true, with most commodities providing negative returns for the year. With the above information as our context, let’s see what Gundlach is predicting for the economy and the markets in 2019. Continue to Next Part Browse this series on Market Realist: * Part 2 - Jeffrey Gundlach: How to Survive the Market Zigzags in 2019 * Part 3 - Gundlach: Junk Bond Market Is Flashing Yellow on Recession * Part 4 - Why Gundlach Expects a Wave of Corporate Downgrades to Come
Steel Companies’ 2019 Outlook: Can the Winning Streak Continue? As noted in the previous article, steel stocks are having a strong run in 2019. Last year, steel stocks had a terrible time and U.S. Steel (X) and AK Steel (AKS) fell 48.2% and 60.2%, respectively.
Why Goldman Sachs Expects Iron Ore Prices to Drop to $60 ## Resilient iron ore prices As we noted in Is the Party Over for Commodities as China Steel Feels the Heat? in November, iron ore prices started collapsing after Chinese steel mills’ margins gave way. In iron ore’s typical price pattern, prices once again started rising and increased ~11% in December. Prices have rallied back to over $70 per ton. ## Goldman Sachs says prices could drop to $60 According to Bloomberg, in a note released today, Goldman Sachs (GS) analysts, including Hui Shan, stated that while the industry’s fundamentals have improved, more supply is on the way, which should restrict the rise in prices. The bank expects iron ore prices to fall to $60 per ton in the next six months. Goldman’s analysts argue that $75 per ton for iron ore is not sustainable for two reasons: “First, part of the rally was fueled by mills restocking ahead of the Chinese New Year. Second, supply is set to increase in 2019.” ## Downside ahead for iron ore? Morgan Stanley (MS) also expects to see losses in the commodity (XME). On January 7, it said, “We’re iron ore bears from here, though, expecting falling crude steel output and growing seaborne supply to ultimately bring price back to the mid-low-$60s/ton.” Moreover, big miners such as Vale (VALE), BHP (BHP), and Rio Tinto (RIO) have been enjoying higher premiums on higher-grade ore due to China’s switch in a bid to control pollution. This switch was supported by higher margins. As margins have waned, it seems like the party might be over for iron ore miners, at least in the short term. The producers of metals such as copper (FCX) and aluminum (AA) have also been under pressure due to China’s muted demand outlook. You can read Why Iron Ore Is Bucking Falling Price Trends Unlike Other Metals for more on this topic.
Alcoa Corporation (NYSE:AA) is down 52% in the past year but it wasn’t all Alcoa-specific problems. More specifically, the SPDR S&P Metals and Mining ETF (NYSEARCA:XME) fell 30% for the same period. After the 2016 election, stocks rallied sharply off the exuberance from President Donald Trump’s growth targets.
The non-farm payrolls for the US (IVV) (QQQ) were 155,000 in November, which underwhelmed economists’ consensus of 198,000. October’s non-farm payrolls (or NFP) were also revised down to 237,000 from 250,000 previously, while September’s NFP were revised higher by 1,000 to 119,000. After last month’s weaker job additions, economists are expecting payrolls to come in at 180,000, which is lower than the average for the first 11 months of 2018 but still healthy.
In March, President Trump imposed a 10% tariff on aluminum imports. While Century Aluminum (CENX) responded positively to the move and announced a smelter restart a few days after the tariffs, Alcoa’s (AA) response was measured from the very beginning. The tariffs have affected Alcoa in several ways.
According to the data compiled by Thomson Reuters, 18 analysts are covering BHP Billiton (BHP) stock. Of these analysts, only 39.0% have given the stock “buys,” 56.0% have given it “holds,” and 5.0% have given it “sells.”
While President Trump’s actions have affected financial markets (SPY), aluminum deserves a special mention. Firstly, we saw a sell-off in aluminum prices after Section 232 tariffs on US steel and aluminum imports raised fears of a global trade war. Several economists raised concerns that Section 232 tariffs would lead to higher costs for US companies and the costs would eventually be borne by end consumers.
Why Now Might Be a Good Time to Look Again at Cleveland Cliffs(Continued from Prior Part)Analyst sentiment Cleveland-Cliffs (CLF) stock has seen a turn in fortunes, as far as analyst sentiment is concerned, since March.
Among US (SPY) steel stocks (XME), U.S. Steel Corporation (X) and ArcelorMittal (MT) are trading at the lowest forward EV-to-EBITDA multiples of 2.5x and 3.5x, respectively. Cleveland-Cliffs (CLF), on the other hand, is trading at the highest multiple of 5.3x. Nucor (NUE) and Steel Dynamics (STLD) follow with multiples of 5.2x and 4.4x, respectively.
Yesterday, the United States lifted sanctions on RUSAL, the leading Russian aluminum producer. In April, when the sanctions were imposed, aluminum prices (XME) surged to their highest level since 2011. Falling aluminum prices have also led to negative price movements for aluminum producers, such as Alcoa (AA) and Century Aluminum (CENX).
As we discussed in this series, falling copper prices have taken a toll on Freeport-McMoRan (FCX). Other miners including Southern Copper (SCCO), First Quantum Minerals (FM), and Rio Tinto (RIO) are also having a somber year. Falling copper prices aren’t the only concern for Freeport-McMoRan investors. The company is staring at a sharp fall in earnings in 2019 as the Grasberg mine transitions from overground to underground operations. Freeport-McMoRan still needs to sort out the environmental claims made by the Indonesian government.
Due to China’s slowing economy and weaker credit growth, market participants have been expecting the government to take aggressive policy action, including a rate cut. In this article, we’ll see how China’s credit growth data are progressing. The data for China’s credit indicators for November were released by its central bank on December 11.
Chinese steel producers have finally come under pressure after reaping significant benefits over the last three years. In November, steel mills ran losses as steel prices entered into bear territory. The current uptrend for steel mills started when Chinese authorities removed high polluting capacity starting in 2016.
China’s steel prices entered a bear market in late November, with the most active rebar contract on the Shanghai Futures Exchange falling 21% since hitting a seven-year high in August. At present, the most active May rebar contract is trading 18% down from its August peak.
China consumes more than 70% of seaborne-traded iron ore, so it’s important for iron ore investors to track the country’s demand and outlook to gauge the overall outlook for iron ore. China imported 86.25 million tons of iron ore in November, implying declines of 8.8% YoY (year-over-year) and 2.4% sequentially—and marking its second straight month of decline. This weakness has been weighing on the demand for imported iron ore.
Vale (VALE) stock has seen a significant shift in ratings over the last one year. Currently, 73.0% of analysts covering Vale stock recommend a “buy” compared with 56.0% at the end of April. Approximately 23.0% of analysts recommend a “hold,” and 4.0% recommend a “sell.” Vale’s target price implies a 30% upside based on its current market price.
Today, UBS analyst Andreas Bokkenheuser upgraded U.S. Steel Corporation (X) from “sell” to “neutral” while lowering the target price from $28 to $22. However, despite the upgrade, U.S. Steel is trading sharply lower. AK Steel (AKS), ArcelorMittal (MT), and Cleveland-Cliffs (CLF) are also trading down. Among the leading steel and iron ore stocks (XME), only Cleveland-Cliffs is in the green this year while the rest are trading with year-to-date losses despite the Section 232 tariffs.