The recent decline in the stock market has provided investors with several opportunities in commodity-related stocks. The recent decline was mainly due to heavy selling by hedge funds and the decline in consumption of these commodities from China. The fundamental long-term outlook for these companies remains solid and this should turn out to be a major buying opportunity for many of these companies. Through most of the 2007 and the first half of 2008, commodity stocks were on fire. However, over the last two months, many of these stocks have lost 50% or more of their gains. Some of the best commodity-related stocks that are now cheap according to their Price Earnings Multiple are Freeport McMoran Copper and Gold (FCX), Nucor Corporation (NUE), Bucyrus International (BUCY), and Arch Coal (ACI).
Freeport McMoran Copper and Gold (FCX)
Freeport McMoran Copper and Gold is the leading miner of copper, gold, and the ever popular molybdenum in the United States. Its major mines are located in Indonesia, North America, South America, and Africa. Freeport reached its 52-week high of $127.24 on May 21st of this year and as of September 16th is trading at $66.25 per share. Freeport, with an EPS of 7.83, is trading at a measly 8 times earnings. Also, factor in that fellow mining company Companhia Vale (RIO), is rumored to be in talks of acquiring Freeport. Even if the take over doesn’t happen, Freeport is a quality company with strong earnings growth that is on sale and should be on your list of stocks to watch. An investor not positive whether Freeport McMoran has hit bottom can use protective put options to be in position for an upswing in the stock, but also have protection from more downside. A married put position for McMoran for January is available with a maximum risk of 6.8%. An investor with this married put position cannot lose more than 6.8% and is in position to profit handsomely if the price of Freeport’s appreciates.
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Nucor Corporation (NUE)
Nucor Corporation is one of the leading North American steel manufacturers. In addition, it engages in the sale of steel and steel products. Nucor reach its 52-week high of $83.56 on May 19th of this year and as of September 16th is trading at $47.37 per share. With an EPS of 5.91, Nucor, like Freeport McMoRan, is trading at a paltry 8 times earnings. With the constant need for steel in this country and other countries such as China, Nucor’s future is bright. Infrastructure is being built world-wide and as last years’ bridge tragedy in Minnesota showed us, the United States has a good amount of rebuilding that needs to be done. Nucor’s stock price doesn’t appear to have bottomed out yet, so a married put stock options position for Nucor could be advantageous, i.e. participate in upside and have protection from downside. A married put for Nucor for January is available with a maximum risk of 5.8%.
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Arch Coal (ACI)
Arch Coal is one of the largest miners of coal in the world. As of 2007, Arch Coal operated 18 coal mines world-wide. Arch Coal reached its 52-week high of $77.40 on June 19th of this year and as of September 16th is trading at $37.30 per share. With an EPS of 2.09, Arch Coal is trading at 17 times earnings, which for this high-growth company, is extremely low. Coal may not be the cleanest of energy sources, but it is one of the most abundant, and China can’t get enough of it. As long as the demand from China remains high, coal companies should thrive in the years to come. Arch Coal’s stock price appears to be nearing its support point, so a covered call investing position for Arch Coal might be appropriate. A covered calls stock options position for Arch Coal for October stock options expiration is available with a potential return of 8.9% – and in only 18 days.
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Bucyrus International (BUCY)
Bucyrus International is one of the leading manufacturers of mining equipment for the extraction of copper, iron ore, coal, and other minerals. The only way for companies like the aforementioned Freeport McMoran (FCX) and Arch Coal (ACI) to extract their minerals is to use machinery built by Bucyrus. On June 17th of this year, Bucyrus International reached its 52-week high of $79.50. As of September 16th, it is trading at a dismal $46.06 and with its EPS of 2.58, is trading at a lowly 17 times earnings. Bucyrus has a long-term growth rate of 19% making this a very cheap stock based on earnings expectations. With coal as popular as it is and a production backlog of $2.2 in machinery equipment, Bucyrus is one high growth stock with tons (no pun intended) of potential. Bucyrus’s stock price appears to be nearing its support point, so a covered call investing position for Bucyrus might make sense. A covered call investment stock options position for Bucyrus for October stock options expiration is available with a potential return of 9.2% – and in only 18 days.
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[tags] China, copper, gold, molybdenum, Indonesia, North America, South America, Africa, North American, steel, Minnesota, United States, miners, coal, iron ore, ACI, Arch Coal Inc., BUCY, Bucyrus Intl. Inc., FCX, Freeport-McMoran Copper & Gold Inc., NUE, Nucor Corp., RIO, Cia Vale do Rio Doce ADR, covered call investing, covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]