Top 3 Mining Companies
Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Investing in mining stocks makes me uneasy. This is because there are so many exploration expenses to pay even before these companies know whether they have made a bountiful claim. But sometimes a sector is too alluring to ignore. As demand for high end products increases in the developing world, mining stocks have huge potential to profit. I recommend well-established mid- and small-cap firms that don't place all their chips on one mineral claim.
Compass Minerals International (NYSE: CMP) looks to be the stock to purchase in the mining sector. The company has increased its revenue over each of the last four quarters, from $179 million in the second quarter of 2012 to $384 million in the first quarter of 2013. That represents more than a 100% increase and is a sign that operations are expanding for the company. The general opinion of this stock has been weak, with Morningstar indicating a hold. However, the company is continuing to beat expectations, and that means the stock is likely undervalued.
While the revenue is increasing at a staggering pace, the company also has a stake in agriculture, which is an industry set to experience increased growth as the world food shortage worsens. Compass is heavily weighted in the potash fertilizer sector, and as crop production increases due to global food demand, there will be a greater need for potash.
Southern Copper (NYSE: SCCO) is the company to purchase if you are looking for some of the best profit margins in the business. Not only has the company nearly doubled its revenue in the last four years, it also has a nearly 30% profit margin on a consistent basis. While revenue fell slightly from 2011 to 2012 (from $6.8 billion to $6.7 billion), the company has still reached a new level: in 2009 Southern Copper's revenue was over $3.7 billion, and that increased to nearly $6.7 billion last year.
The company is one of the world's largest mining firms, and processes minerals such as copper, zinc, lead, molybdenum, silver and coal. Investing in copper via such a large player in the industry is a safe way to get in on the metal. With China's economy recovering, there should be an increase in copper demand.
Materion (NYSE: MTRN) has experienced a significant increase in revenue over the past four years. The company was taking in $715 million in 2009, and that has since increased to nearly $1.3 billion last year. The downside to this stock is the amount of expenses, which results in a low profit margin -- just under 2% last year. But with the type of growth the company is experiencing, there could be nothing standing in the firm's way.
Through its wholly owned subsidiaries, the holding company produces advanced engineering materials. In essence, it provides much of the material needed for electrical, thermal, electronic and structural applications. That makes this an attractive stock to purchase for those who are also bullish on technology. Developing countries will likely play a major role in the profitability at Materion, due to their greater demand for telecommunications infrastructure and automotive electronics, for example.
Knowing exactly how much of these companies' profits are from the developing world is difficult to say. But it is certain that more people in the developing countries are buying cars and cellphones, for example. That leaves the manufacturers of these products in a solid position to profit, and businesses providing the materials for the manufacturers are along for the ride.
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Phillip Woolgar has no position in any stocks mentioned. The Motley Fool owns shares of Compass Minerals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!