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Mining groups hold three of the top 15 rankings among IBD’s 197 industry groups. Gold miners rank No. 1. Coal has climbed to No. 7. Mining equipment ranks No. 15, while ore miners are at No. 35. Strength in coal, mining equipment and ore mining stocks is generally a bullish sign, suggesting that global economies are growing hungry for raw materials. Gold mining stocks generally rise and fall in tandem with gold prices. Gold prices typically rise when investors seek shelter from risk, which tends to make strength in gold mining stocks a negative indicator. The fact that gold miners have been the top-ranked industry for a solid eight weeks underscores the challenges in the current stock market. As a group, coal mining stocks have jumped 20% since the start of Q1, rising from dead last in IBD’s industry rankings to their no. 7 ranking on Thursday in just four weeks. That extraordinary advance began just as industry giant Peabody Energy declared bankruptcy in mid-April. Peabody plans to continue operations unabated, it said in a statement, while seeking to reduce debt and costs in the face of an “unprecedented industry downturn.” Why the bounce in coal stocks? Natural gas prices recovered 35% since mid-March. That is far short of oil’s 78% rebound, but enough to give some hope that coal will be somewhat more competitive with natural gas among electrical generators. Group heavyweight Consol Energy ( CNX ) focuses on thermal coal used in power production. Steel’s Role The other side of the equation is steel. China, the world’s largest steelmaker, announced in February that it planned to trim its steel production capacity by up to 150 million metric tons in the next five years. The aim is to increase industry efficiency and profitability, but China continued to roll out steel at record levels in March, exporting much of the surplus to international markets. But the plan — alongside manufacturing and construction data showing flickering signs of economic strength — have launched rallies in steel, ore mining and coal mining stocks. Many miners in the East that produce high-energy anthracite coal, called metallurgical coal, used in the steelmaking process have benefited from the rally. In addition, a number of stocks in the industry offer dividends, and depressed share prices have driven yields to tempting levels. Suncoke Energy ( SXC ) currently offers a yield of more than 10%; Alliance Resource Partners ( ARLP ) and Alliance Holdings ( AHGP ) around 12%. This coaxes income investors to try to jump in at low levels and lock in higher returns. Gold mining stocks climbed in 12 of 14 weeks through the end of April. The group has backed off modestly in May, but not enough to surrender its top-ranked status. Gold prices rose 22% in December through March, and have since consolidated mostly below the March high of around $1,278 an ounce. Highest-Flying Stock The highest-flying stock in the group is Russia’s Polyus ( OPYGY ). The stock, thinly traded in the U.S., is up nearly 600% since February. That has played a key role in securing gold’s strong group ranking. But more broad-based players including Barrick Gold ( ABX ), Newmont Mining ( NEM ), Goldcorp ( GG ) and others have also lodged significant rallies from January lows. Many companies in the group are projected to post hefty earnings turnarounds this year and next, as rising gold prices and capacity investments come on line after several years of earnings and revenue declines. But the results continue to be hit and miss. The consensus estimate for Barrick’s EPS shows a 77% increase this year on a 12% decline in revenue. Newmont’s EPS are expected to rise 26% with a 3% revenue gain. Goldcorp’s estimates are for EPS jumping 286% while revenue declines 11%. Scalper1 News
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