Update Vale (VALE) in my long-term Jubak Picks 50 portfolio

I’d like to blame the weather. And there is no doubt that weather in Brazil’s rainy season hurt Vale’s (VALE) first quarter earnings reported on April 25.

But when the drop in quarterly earnings is the third consecutive drop in earnings, then I think you can be pretty sure something more serious is going on. (Vale is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ )

What’s most important, though, to investors who have made money on Vale in the past and have been looking to see when they might be able to make money on Vale in the future is that all these quarterly declines in earnings are setting up a potentially good second half for the stock.

Vale, reported net income of $3.83 billion for the quarter. That was down 44% from the record $6.83 billion in net income for the first quarter of 2011. Net income was also down 18% from the fourth quarter of 2011.

Part of the problem was indeed the wet weather. Wet iron ore sells for less than dry ore and Brazil’s heavy seasonal rains reduce production too. Iron-ore production did fall 2.2% in the quarter. Vale’s production costs rose 2% because the company hired more workers to do dredging and maintenance on its mines.

But the bigger problem was falling iron-ore prices on lower demand from Europe. Read more

Update Freeport McMoRan Copper & Gold (FCX)

Freeport McMoRan Copper & Gold (FCX) has been a laggard in the rally of the last few days. Oh, the stock was up yesterday, March 8—1.3% at the close—but that trails the performance of mining stocks such as Goldcorp (GG), up 1.7%, and BHP Billiton (BHP), up 1.5%. Today the shares finished off 1.8%.

That because Freeport McMoRan and every other mining company that operates in Indonesia has a country-specific problem today. A new government regulation announced bars foreign companies from owning more than 49% of some mines.

Limiting ownership to 49% would be a big blow to companies such as Freeport and Newmont Mining (NEM), which climbed just 0.4% today.

But the decree leaves open the question of exactly which mines it would apply to—making it hard to judge the impact on specific companies. Read more

Caterpillar’s earnings surprise is good news for all mining equipment shares

This morning, October 24, before the New York market opened Caterpillar (CAT) announced third quarter earnings of $1.71 a share, a positive earnings surprise of 7 cents a share.

Today, as you’d expect Caterpillar shares are up big—5.08% as of 2:20 p.m. New York time—and as you’d expect Caterpillar’s positive surprise has sent shares of other companies in the construction and mining equipment sector soaring.

And the more exposure a company has to mining—the strongest part of Caterpillar’s business this quarter—the bigger the gain. So Deere (DE), which has more exposure to farm than to construction equipment, is up 3.26%. Joy Global (JOYG), which is more of a pure play on mining than Caterpillar, is up 5.68%. And Titan International, which has big exposure to mining and has been beaten down more than either Caterpillar or Joy Global, is up 11.64%. (Deere and Joy Global are both members of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ . Titan International is a member of my 12-18 month Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

It also probably hasn’t hurt Titan International that the company reports earnings on October 26, after the New York market closes, and that’s close enough to Caterpillar’s report date to make the momentum players jump on board in search of another earnings surprise. (Joy Global, by contrast, doesn’t report earnings again until December 14.)

Let’s not move on too quickly from Caterpillar’s earnings, though. Read more

Update Freeport McMoRan Copper & Gold (FCX)

On July 21 Freeport McMoRan Copper & Gold (FCX) reported second quarter earnings of $1.43 a share, 7 cents a share above Wall Street projections. Revenue climbed to $5.81 billion, a 50.5% increase from the second quarter of 2010. (The stock is member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )

There were three especially positive parts of the Freeport McMoRan story this quarter.

Sales grew from last year’s levels. Sales of copper climbed to 1 billion pounds (from 914 million in the second quarter of 2010), molybdenum to 21 million pounds (from 16 million) and gold to 356,000 ounces (from 298,000.)

Cash costs fell with net cash costs for copper, for example, dropping to 93 cents a pound from 97 cents a pound in the second quarter of 2010.

And projects that are estimated to add 20 million pounds of molybdenum production in 2013 and 975 million pounds of copper production by 2016 continued on track at very modest capital cost. Read more

Buy Titan International (TWI)

Here we go again?

In 2007 Titan International (TWI) was one of the hottest stocks in the commodity sector, climbing 55%, as the company couldn’t make tires fast enough to meet demand in the mining sector.

The stock plunged in 2008—falling 67%–before recovering (and how—up 141%) in 2010. The shares are up 41% in 2011 to date but down 11.4% in the last month.

Buy on the dip?

Depends on how long you think the demand for the tires that go on the big trucks that haul coal and iron ore will last. Prices for the huge tires that go on Caterpillar trucks, for example, have climbed to $100,000 on the spot market. In the last boom Barrick Gold reported spending $60,000 for a tire on its largest trucks.

In the first quarter of 2011 Titan International set new records or revenue at $280 million (up 43% from the first quarter of 2010) and for operating income (excluding one time charges for exchanging convertible debt for stock) at $27 million (up 166% from the first quarter of 2010). That kind of growth makes the stock’s trailing 12-month price to earnings ratio of 221 look reasonable. At a projected growth rate of 185%, the forward price-to-earnings ratio on projected earnings is just 16.9.

No doubt that the mining business tends to boom or bust—but actually 75% of Titan International’s revenue in the first quarter came from its farm tire business. Read more