4 Natural Resource Stocks Ready To Move Higher In 2012
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With companies and governments struggling, construction, specifically infrastructure improvement has slowed greatly. Governments have less money to spend on roads and large buildings and companies aren’t building new warehouses or factories. Eventually that has to reverse, if for no other reason to repair and maintain current roads and facilities so they don’t deteriorate into nothing; and once the economy really rebounds so should infrastructure. Below I discuss 5 big resource plays that will benefit from that turn.
Pioneer Natural Resources (NYSE: PXD): Shares traded around $97.63 at the time of this writing. This is well above their 52 week low of $58.63 and below their 52 week high of $106.07. Pioneer has been growing EPS rapidly from 1.36 in 206, -1.24 in 2009, 3.97 in 2010, and an estimated 3.54 for 2011. In its Jan 2012 Investor Presentation, Pioneer is forecasting 18% compound annual production growth and 30% compound annual operating cash flow growth to the end of 2014. If this is true, Pioneer stands to be a great growth play through mid-2014. It owns the most rigs and is planning aggressive growth at the two largest U.S. oil stores; Spraberry and Eagle Ford. On top of that 95% of its claims are confirmed. Since the U.S. is doing everything possible to decrease oil prices, especially with the pending Iran conflict, drilling companies can take huge advantage right now to increase production capacity. I do think Pioneer is a little overbought here, look for a pull back of a few dollars before jumping in and riding it up.
Cliff Natural Resources (NYSE: CLF): Shares traded around $70.25 at the time of this writing. This is right in the middle of their 52 week high of $102.48 and 52 week low of $47.31. Cliff also offers an annual dividend of $1.12 for a yield of 1.20% with a payout ratio of 5%. Cliff is the largest producer of iron ore in North America, owning 45% of the capability. Cliff is another company that has a large growth potential. For the first 3 quarters of 2011 iron ore revenue was up $772.2M over the same period in 2010. Cliff attributes the growth to higher market prices for ore. For that same period its coal segment lost $55M more for a total of a negative $60M. This was attributed to less volume and lower prices. I don’t see coal having a significant impact on Cliff’s overall position. With rates continuing to stay low here in the U.S. and possibly dropping even lower in Europe and China, other companies can get cheap money to build and expand. This should help the steel market rebound in the coming years thus raising the price of iron ore. Once the market turns a little more noticeably I see Cliff going up fast. If you’re considering a materials play, I would get in here and wait for the ride to the top. I see Cliff at $110 to close out 2012.
Martin Marietta Materials (NYSE: MLM): Shares traded around $78.97 at the time of this writing. This is right in the middle of their 52 week high of $94.31 and 52 week low of $59.93. Martin offers an annual dividend of $1.60 for a yield of just over 2% with a payout ratio of 90%. Martin mines, gathers, and produces various infrastructure items; granite, sand, gravel, road asphalt, etc… Martin is in the midst of a hostile takeover bid for Vulcan Materials Co (VMC). Currently this is proposed as an all-stock deal. This deal would expand Martin’s highway materials division mainly. As economies begin to slowly rebound, despite a small loss for 2011, I think there will be a small increase for 2012. It may only be small enough to bring 2011 & 2012 to a net of 0. If Martin gets to acquire Vulcan, it could see an increase in market share and significantly cut costs to greatly improve margins. I think MLM is a hold while we await word on the Vulcan issue. Ahead of any decision there should be a traditional dip, buy in then.
Cimarex Energy Co. (NYSE: XEC): Shares were trading around $60.23 at the time of this writing. This is well below their 52 week high of $117.95 and slightly above their 52 week low of $50.80. Cimarex offers an annual dividend of $0.40 per share for small 0.66% yield with a 6% payout ratio. According to its 3rd quarter filing, 3rd quarter sales increased 15% to $419.7M versus the same period last year. While Q3 production volumes were down, realized prices for oil, gas, and natural gas liquid were up 20%, 2%, and 36% respectively. Cimarex also said it plans to increase production. If it could grow and take advantage of the price increases, that would bode very well. Another problem is that Cimarex has 8.7 years of production based on current supply interests, and it has admitted that its exploration program hasn’t been very successful as of late. Cimarex currently carries only $350M in debt with a market cap of just over $5B. I think this could make for a possible takeover target for any larger exploration/drilling companies. It could be picked up by a Pioneer or a largely oil company looking to expand its natural gas holdings. Cimarex’s shares are beat up rightfully so, another reason it would be ripe for a buyout.
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