Companies mining and selling base metals are boasting huge profits and high valuations these days. Their success is hinged to commodity prices, but within the sector, performance and expectations span a wide range.
In this screen we have collected data that can be used to assess the strength of large players in the base metals industry. It lists 21 stocks traded in the United States and/or Canada with revenues of $500-million (U.S.) or more. To filter down the initial list of more than 250 stocks, we set a number of criteria. Each company had to be profitable. We set the bar for annual net income at $100-million, which is fairly high, but seemed reasonable given how much money is being made in the sector these days.
We also wanted to see companies that were sharing some of their wealth with shareholders, and set a minimum dividend yield of 0.5 per cent, which significantly shortened the list.
Companies exposed to the steel sector have a big presence. There are seven such players on the list, including: Brazil's Gerdau, Luxembourg's ArcelorMittal, California's Reliance Steel & Aluminum , and Cliffs Natural Resources Inc. . The latter is a mining and natural resources company based in Cleveland, Ohio, producing iron ore pellets and metallurgical coal.
A few names may look unfamiliar, such as Oslo's Norsk Hydro, which produces aluminum and energy. In fact, overseas companies have a strong presence on the list, trading on the New York Stock Exchange as ADRs or on the over-the-counter market as pink sheets.
Several companies specializing in precious metals have snuck onto the list because they have some exposure to base metals. Yamana Gold's operations include copper mining and Kinross Gold's properties also include copper. Lima-based Compania de Minas Buenaventura S.A.A., is a precious metals company, but also explores for zinc, lead, and copper.
The screen's data come from StarMine, a Thomson Reuters service that ranks analysts and gathers earnings estimate data to which it applies proprietary research to detect momentum and other factors.
The first such measurement is called StarMine SmartEstimate, which is a proprietary blend of analysts' estimates that aims to more accurately forecast upcoming results than the consensus estimate. It gives a weighting to each analyst's estimate according to his or her past accuracy. SmartEstimate also gives greater emphasis to the timeliest forecasts and less to those that have not been updated for a lengthy period.
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Our screen lists the degree of change, up or down, in the SmartEstimate for each company's EPS this year, measured as a percentage of the original forecast. We set the time window for the change at the last 30 days. This column gives an idea of which way momentum is going for the stock.
The percentage difference between the SmartEstimate and the consensus estimate of the Street, called the mean, produces another StarMine metric called the Predicted Surprise. Stocks with positive surprises tend to have above-average price performance. Stocks with negative surprises tend to underperform the market, according to StarMine.
The third StarMine measurement applied to this screen is the Analyst Revisions Model, or ARM, which is a measure of the change in analyst sentiment ranging between 1 and 100, with 100 representing the highest rank.
The ARM looks at changes in the consensus over multiple time frames and not just for earnings, but also EBITDA and revenue revisions. It also takes into account the Predicted Surprise percentage shift on these various measures. When this score is near the top (100 - the highest ranking) or bottom (1 - the lowest ranking) of its range, it is highly predictive of future earnings revisions up or down and helps investors anticipate these events, StarMine says.
We have organized the stock rankings here by their ARM scores, which are very strong compared with some of the screens we have published in the past for other sectors. Ten of the companies have ARM scores above 80.
Several of the companies on the list have dual share listings on a U.S. and Canadian exchange. The situation leads to different StarMine results for the different stock symbols. For example, Teck Resources' U.S.-listed stock gets an analyst revisions score of 89 and a predicted surprise on earnings this year of 3.9 per cent. The Canadian issue produces an analyst revisions score of just 64 and a predicted surprise of 1.4 per cent.
The differences arise because different analysts follow different ticker symbols, says Tim Gaumer, director of fundamental research at Thomson Reuters. Seven analysts, for example, are following the U.S. listing of Teck and 15 are following the Canadian one. The bigger group's estimates are more tightly clustered around consensus, producing a smaller predicted surprise, he says.
We have used the domestic listing of Teck Resources, Agnico Eagles Mines , Kinross Gold and Yamana Gold .