Thursday, January 31, 2013

Which Is My Favorite PGM Stock?

Platinum Group Metals (PGM) were the best performing metal for the year 2012, along with silver. Both showed an average rise of 6% for the year. PGMs are expected to perform strongly in 2013 as well. Why? That has been explained with the help of future outlooks for three stocks in this space:
Eastern Platinum Ltd. (TSE:ELR)
The Street is forecasting sales of $12.3 million with a cash cost for the quarter of $919/oz.
The company is expected to report EPS of $0 on Mar. 6. As the company continues to be in cash conservation mode, the Street looks forward to hear from the management on 2013 cash cost guidance, which is estimated to be $1,039/oz, and sales guidance, which is estimated at 55.8koz in 2013.
North American Palladium Ltd (NYSEMKT:PAL)
NAP reported strong production figures of 44.3koz (relative to the Street’s estimate of 40.0koz) for DecQ12. Sales are estimated to be $40.9 million with cash costs of $361/oz for the quarter. The strong set of production numbers puts NAP's YTD production at 164koz, beating the high end of its 150-160koz full year guidance.
The company is expected to announce its earnings on Feb 22.
Stillwater Mining Company (NYSE:SWC)
In one of my earlier posts, I mentioned how this stock is ready to be short-squeezed. It is to be noted that a deficit of palladium is around the corner. The reasons are:
1)      Production bottlenecks in South Africa, which accounts for almost 35% of global palladium supplies;
2)      Shrinking supplies of palladium in Russia, which accounts for 15% of global palladium supplies;
3)      Recovering global demand, driven largely by improving global auto sales, especially in the US.
In this situation, those PGM players that have a large exposure to palladium and platinum sales will benefit the most. The following chart shows the situation:
The chart clearly shows that both Stillwater and North American Palladium (PAL) have an ideal mix of revenue streams to benefit from the ongoing surge in demand for both platinum and palladium. Also, North American Palladium has sizable exposure to gold, which means that it can also benefit from an unexpected rise in gold prices in the future (The market is currently bearish on gold, which means a decline in gold prices has already been factored into the stock).
The Street estimates Stillwater to post EPS of 5 cents on revenue of $216 million. The company is expected to report on Feb 18.
Page 1 of 2

Be Very Afraid When Fear Disappears From Markets

These days, many indicators suggest we are in an extremely low-risk market environment. The Chicago Board Options Exchange Volatility Index, or VIX, sometimes known as the fear index, has reached a five-year low. European sovereign-bond yields, long a source of anxiety, have eased since their uncomfortable march higher in 2011, and the euro has risen 13 percent from its 2010 low.
Options on currencies also suggest little fear in that market. In the U.S., the Standard & Poor’s 500 Index (SPX) rose 13 percent last year and the average forecast among Wall Street analysts is for a 9.4 percent gain this year, supported by growing profits and investor willingness to pay more for each dollar of earnings. In Europe, bank balance sheets are still fragile, but the rally in share prices inspired by European Central Bank President Mario Draghi’s “whatever it takes” pledge last summer left financial companies in far better shape to weather turmoil.
To be sure, meaningful progress has been made in escaping the abyss of systemic risk that enveloped the U.S. in 2008 and Europe in 2011. But policy makers should avoid the trap of reading too much into this stable environment.
In today’s world, the meager level of the VIX and record- low yields on credit-market instruments are largely linked to the Federal Reserve’s accommodative monetary policy, which is artificially damping market risk. In the wonderfully succinct words of John Burbank, the chief investment officer of Passport Management LLC in San Francisco, “price is a liar.” Perhaps no price is more dishonest than that of U.S. Treasuries, whose yields are being held down by the Fed’s quantitative-easing program, in which the central bank buys billions of dollars in government securities each month.

Facing Reality

Recent history is rife with periods when the price of risk failed to reflect obvious financial realities. In 2000, we watched technology-stock valuations reach stratospheric highs where entirely new valuation metrics were invented to justify prices. By early 2003, tech-stock prices had plunged more than 60 percent.

Senate Passes Three-Month Suspension of U.S. Debt Limit

The Senate voted to send legislation suspending the U.S. debt limit for three months to President Barack Obama, temporarily removing the risk of a government default from fiscal negotiations.
The measure, crafted by House Republicans, will lift the government’s $16.4 trillion borrowing limit until May 19. The Senate cleared it 64-34 today in Washington.
“Raising the possibility that the United States could default on its obligations every few months is not an ideal way to run a government,” Senate Majority Leader Harry Reid said today before the vote. “But a short-term solution is better than another imminent, manufactured crisis.”
The measure eliminates the risk of a default in the short term. Lawmakers fought for months over raising the ceiling in 2011. Obama signed the increase into law on Aug. 2, 2011, the day the Treasury Department warned that U.S. borrowing authority would expire.
West Virginia Senator Joe Manchin was the only Democrat to oppose the measure, which had the backing of 12 Republicans. Minority Leader Mitch McConnell, who is seeking a sixth term in Republican-leaning Kentucky next year, voted against the bill.
The debt-limit measure includes a prod to lawmakers, saying the House and the Senate each must adopt a budget for the next fiscal year by April 15. If not, pay for members of the chamber that doesn’t act will be withheld until they adopt one -- or until the end of the 113th Congress at the latest.

Boehner Statement

House Speaker John Boehner, an Ohio Republican, said in a statement following the vote thatSenate Democrats should “present a plan that balances the budget and responsibly addresses the government’s spending problem.”