February 23rd, 2006

Metals and Mining Stocks

In response to my last post, a reader wrote “The charts tell a story, if you know how to read the plotline. Sometimes it gets a bit murky, but eventually the patterns re-emerge.” Thank you, I wish I had said that line myself. And your question was about the Metals and Mining stocks (“I am still trying to figure out the metals and mining stocks at the moment.”)?

Jim Cramer devoted nearly his entire February 21 show (click here for a recap of this and all other shows) to his bullish view of materials and select earth moving equipment stocks. The reasons given for the bullish opinion was the growth in international trade, world economic growth and strong world demand forcing prices up (does that mean inflation in our future?).

Cramer always says “I don’t care where a stock has been, I only care where it’s going.” Looking at the 11 stocks making up his list of metals and mining it’s clear that Jim doesn’t look to see where these stocks have come from. What Cramer didn’t say was that buying these stocks now means jumping on the bandwagon long after the’ve already increased an average 400% in less than 36 months since 4/1/03! The stocks and their percentage moves since 4/1/2003 were:

  • ABB (ABB) : 404.9%
  • BHP Billiton (BHP) : 230.5%
  • Cameco (CCJ): 713.2%
  • Caterpillar (CAT): 192.8%
  • Freeport-McMoRan (FCX)
  • Joy Global (JOYG): 964.2%
  • Manitowoc (MTW): 342.9%
  • Phelps Dodge (PD): 359.4%
  • Rio Tinto (RTP): 150.8%
  • Southern Copper (PCU): 447.4%
  • Terex (TEX): 514.8%
  • Average: 402.3%

I don’t know about you, but I get a bit queasy buying a stock that’s shot up 50% in a short time, let along stocks that have gone up 400%. Of course, I could have said the same thing any time during 2004 or 2005 and missed out on some fabulous gains. So, other than the laws of probability, there’s nothing to say there won’t be more significant gains over the next 6-12 months. I’ll be watching …. but not participating.

We all love watching Jim’s crazy antics every night but often he’s late to the party. By comparison, Jim Rogers, who appears on Fox’s Business Block on Saturday mornings has advocated commodities and materials stocks for nearly three years. You can read about it in the following books he’s written:

I’m surprised that Jim didn’t mention materials stocks in other sectors, specifically precious metals (see my post November 26), steel (see my post January 26) and aluminum. While these, too, have risen they are not as over-extended and perhaps have more room to grow than those mentioned by Jim.

It frustrates me to no end that it’s only after they’ve made huge moves that we’re told about foreign (see my December 30 post), metals and mining stocks, precious metals or any one of the IBD100 stocks. Where are you, Jim, and IBD, when we can really use you … like before a group or a stock makes its move not, using a rear-view mirror, telling us a stock would have been a really good investment. I hope that my posts here are more current and useful.

And, as an after thought, I hate to pour salt on an open wound, but what happened to the much touted “Cramer Tech Rally” that Jim was screaming about between September and December? He must think we have short memories.

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