The Feb. 12 issue of Capitalist Times Premium highlighted a handful of survivors in the mining industry that could make for profitable deep-value plays once the global supply-demand balance for key commodities improves.
These picks have surged above our buy targets during the recent rally and, by all accounts, have moved too far, too fast. Investors who followed our lead on these names should sell Rio Tinto (NYSE: RIO) for a 21.3 percent gain and cash out of Goldcorp (NYSE: GG) for a 22.9 percent profit.
As for Glencore (LSE: GLEN), investors should retain their initial position and book their 47.8 percent profit in US dollar terms. The same goes for our 46.1 percent gain in South32 (LSE: S32).
Metals and mining stocks have rebounded hard this year, as depressed valuations and extreme pessimism toward these names resulted in a great deal of pent-up energy that finally found expression. Iron ore, silver, zinc, oil and gold prices have all rallied hard in recent months.
Although our long-term outlook for commodity prices and mining stocks remains positive, the magnitude of this sudden surge creates the potential for a bit of a retrenchment over the next five months or so.
However, we do not share the sentiment that another boom in commodity prices is imminent. Most commodity prices have put in their lows for this cycle and have started down the road to recovery—a winding path that will require vigilance at every turn.
The next two to five months will bring high volatility to commodity prices and mining stocks, though we expect both to finish the year strong.