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Eight base metal stocks to watch Add to ...

Karvy Global Services, a subsidiary of the Karvy group, provides specialized research in asset classes including stocks, mutual funds and insurance to leading Wall Street firms.

A TD Securities analyst says the overall outlook for base metals is positive and China's copper demand is quite steady.

Further, he adds that economic recovery in the U.S. will add incrementally to demand. Surprisingly, China's latest industrial production data add to the positivity and ease the concerns of a looming debt scenario in Europe and the U.S.

According to a recent report by Fitch Ratings, base metals producers are likely to record higher earnings and cash flows in 2011 compared to 2010, driven by improved prices. The rating outlook for the sector is stable on the expectations of metal producers remaining disciplined and retaining their financial profile through the recovery. Furthermore, Fitch foresees the recovery to stretch into 2012.

These eight stocks have upside potential of 9% to 41%, according to a Bloomberg consensus. On average, these stocks have 66% buy ratings, 28% hold ratings and negligible sell ratings.

The stocks are stacked based on upside, great to greatest.

8. Kaiser Aluminum is a specialty aluminum products manufacturing company that operates through one reporting segment: fabricated products. Its other business units include secondary aluminum, hedging and corporate.

The company is scheduled to release its second-quarter earnings on Wednesday after market hours. According to a Bloomberg consensus, KALU is likely to report sales of $339 million for the second quarter, a 20% increase from $282.4 million in the year-ago quarter. EBITDA for the quarter is pegged at $26.85 million as compared to $10.60 million in the same quarter a year ago. Earnings per share are forecast at 53 cents.

The company recently announced a quarterly cash dividend payment of 24 cents per share on its outstanding common stock, payable Aug. 15, 2011. In a significant development, Kaiser disclosed signing a long-term agreement in principle with Airbus to supply aluminum plate and sheet for use in the production of commercial aircraft. The agreement will begin on the completion of the existing supply agreement.

Meanwhile, with an investment of almost $11 million by the year-end, Kaiser has announced the expansion of its Kaiser Alexco hard alloy aerospace extrusion facility in Arizona to meet growing demand.

Of the four analysts covering the stock, 25% recommend a buy and the rest a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg expect the stock to gain an average 9.3% to $61.00 in the upcoming 12 months.

7. Southern Copper, an integrated copper producer and subsidiary of Mexican miner Grupo Mexico, also engages in the production of molybdenum, zinc and silver. The company has exploration, mining, smelting, and refining activities through facilities located in Peru, Mexico and Chile.

SCCO conducts its business through three segments: Peruvian operations, Mexican open-pit operations, and Mexican underground mining operations.

According to a Bloomberg consensus, SCCO is expected to report sales of $1.78 billion for the second quarter of 2011, up 52% from $1.17 billion recorded in the year-ago quarter. Net income for the quarter is seen increasing to $605 million or 74 cents per share, compared to $313.4 million or 37 cents per share in the second quarter of 2010. Operating profit is likely to soar by 88% to $1.02 billion. Dividend per share could increase to 57 cents from 45 cents in the comparable quarter a year ago.

Goldman Sachs has resumed its coverage on Southern Copper with a neutral rating and it is bullish on the copper price cycle. Further, the investment banking and securities firm also believes that short-term overhangs offset the discounted valuation to historical multiples, primarily regulatory framework for the mining sector in Peru and the execution of Tia Maria project.

Moreover, Southern Copper is creating value in excess of its cost of capital, as indicated by a positive EVA momentum of 10.5%.

Of the 17 analysts covering the stock, 41% recommend a buy and 53% suggest a hold. Analysts polled by Bloomberg expect the stock to gain an average 10.5% to $39.43 over the next 12 months.

6. Freeport-McMoRan Copper & Gold mines copper, gold and molybdenum and has a dynamic portfolio of assets, including the Grasberg minerals district in Indonesia, mining operations in North and South America, and the Tenke Fungurume (Tenke) minerals district in the Democratic Republic of Congo (DRC). Overall, FCS operates seven copper mines in North America and four copper mines in South America.

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