Nickel is often nestled in the shadows of better-known metals such as copper and gold, but Desjardins Securities Inc. believes the silvery-white lustrous commodity is where the buying opportunity lies for investors right now.
Since peaking at $9.90 (U.S.) a pound on Feb. 9, the nickel price has declined 24 per cent to $8, which is just below where it started the year. It’s a pretty shabby performance considering the London Metal Exchange Index, made up of six industrial metals including copper and aluminum, is up about 7 per cent year-to-date. Nickel, in fact, is the only major metal that is trading below exit levels for 2011.
Desjardins analyst John Hughes believes there could be several reasons for this. Some traders may be doing some profit-taking after a rally in January, for instance, and markets may be feeling less bullish given that nickel prices remain above the marginal cost of production.
But there are signs nickel is heading for an upswing. For starters, the price for nickel on the London Metal Exchange is currently trading at or even below domestic prices in China. Eventually, this will make buying Western world-produced nickel, priced through the LME, more attractive than buying domestically in China, Mr. Hughes points out.
In addition, current nickel prices are below cash production costs for several Chinese producers of pig iron, a lower-quality but abundant product that has increasingly competed with Western nickel supplies. The more favourable pricing of Western nickel relative to pig iron may encourage the Chinese to import more nickel, he says.
There are also signs stainless steel demand - which accounts for two-thirds of the end use of the metal - may soon rebound. The latest data suggest stainless steel distributor shipments were up 6 per cent in January versus a year ago and inventories have declined over the same period. Inventory-to-shipment ratios are currently at 18-month lows.
All this means “it’s time to buy,” says Mr. Hughes in a research note. He recommends several nickel producers, including Sherritt International Corp. (which he rates a “buy” with a $9.50 price target) and First Quantum Minerals Ltd. (a “buy” rating with a $30.55 share target).
Fortis Inc. shares have underperformed its peer group by nearly 5 per cent since the power distribution company bid $1.5-billion (U.S.) for New York energy delivery company CH Energy Group Inc. in late February. UBS analyst Chad Friess believes this will soon change. “We expect FTS’s valuation to re-rate higher once the uncertainty and associated equity issuance around the CH Energy deal is resolved,” he said.
Upside: Mr. Friess upgraded Fortis to “buy” from “neutral” and kept his $36 price target.
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The resignation of James Murdoch from BSkyB is a “moderate positive” for News Corp. since it reduces the likelihood the company will have to sell its stake in the U.K. broadcaster, said Canaccord Genuity analyst Thomas Eagan. “More specifically, we believe (U.K. regulator) OFCOM is less likely to rule that the News Corp. is not fit and proper to hold a broadcast license with James Murdoch stepping down,” he said.
Upside: Mr. Eagan maintained a “buy” rating and $25 (U.S.) stock price.
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Canaccord Genuity analyst Scott Van Winkle is feeling more upbeat on diet product company Medifast Inc. after meeting with its new CEO, Mike MacDonald. He’s impressed with Medifast’s new cost disciplines and management strategies, especially its plans for growing clinic franchising.
Upside: Mr. Van Winkle raised his price target by $3 to $19 (U.S.) and reiterated his “hold” rating.
Gasfrac Energy Services Inc. has provided early warning that first-quarter results will be well below already-disappointing fourth-quarter levels, due to sluggish U.S. activity and the early spring that has limited the movement of rigs on frozen ground. “We see this as confirmation that work for Husky has been less than guided while U.S. activity has fallen heavily after an initial fast start in 2011,” commented UBS analyst Chad Friess.
Downside: Mr. Friess cut his price target by $1.50 to $5 and reiterated a “sell” rating.