Rio Tinto (RIO)

What better way to play the manufacturing uptick or the strength of the manufacturing economy than to play one of the world’s largest metal and mining companies. Between Oct 4 and Jan 6, the average gain is 10.76%, and has been positive in 15 of the past 20 periods. There is a trend of higher highs and higher lows. It’s bumping up against long-term resistance at about $50. Has really gone sideways at that level since the recession. If we do see a break out, we should see tremendous highs ahead. He wants to be seeing the play in copper even if there is an uptick in gold. (Analysts’ price target is $55.)

Recently, over the last few weeks, the US Economic Surprise data has started to improve. There have been lots of great economic reports from around the world over the last few weeks. Japan is growing at over 4% for the 1^st time in 20 years. He wants to have exposure to that. Basic materials area is an area that has been in favour since 2011. This company is one of the biggest producers of copper, iron ore, met coal and other commodities around the world. They do not hedge their production, so if prices go up, they benefit. Really prudently managed. Almost no debt. Dividend yield of 6.3%. (Analysts’ price target is $52.66.)

He has been doing a lot of reading and there is some good research coming out of the big firms arguing that they have their balance sheets fixed up. They are not counting on China, but are counting on other countries. If China is stable and the other economies keep growing, companies are arguing that we are going to have another big cycle. You don’t need to bet on a smaller company, if you bet on a big company you are going to get a very nice return. Yield of 1.2%. (Analysts’ price target is $46.)

(Top Pick Feb 6/17, Down 3%) He is holding it as a sector play. It weakened a little bit. It is back on trend line. This sector should move until May or June.

One of the globes biggest mining companies. Before investing in any of these things, you have to figure out what resource prices are going to do over the course of the coming year. The mining sector tends to be a real momentum play. The stocks right now are running in a positive direction. Feels that they have surged up too far now.

(A Top Pick Dec 30/16. Up 11 point to 3%.) He is looking at this as a trade to go out in the spring with. Copper, one of its products, tends to do well from early January to about April or May. It has a great chart with a break out, and is now starting to move. This could still be a Buy on a pullback.

He likes the metals. This company has a pretty big chunk of copper, which is seasonally positive. The trend has been up and this is currently forming a base at around $38, and should do okay into the spring. (Analysts’ price target is $42.74.)

This gives you a big, diversified metals company. Their biggest exposure is to iron ore with global exposure. China is about 40% of their revenue. China seems to be improving. Materials should be a piece of every portfolio now. This is a great position, and you want to see it play out. Use a Stop on the position.

Bulk commodities, base metals and over a 6% yield. Thinks we are actually in the bottoming stage now. It will be slightly better a year from now. The news in China for the time being is better.

This and BHP Billiton (BHP-N) are on his radar screen, in part potentially for some of his dividend oriented funds. Draws a lot of revenue and EBITDA from iron ore. Many question the philosophy of the company, i.e. building more capacity in an oversupplied market, in an attempt to bring on more low cost supply, and driving out higher cost producers. This has been a huge overhang on iron ore. They are the dominant producers. Thinks the dividend is pretty safe and they can finance it for the next couple of years at current spot prices. 5.2% dividend yield.

Doesn’t think this is a good time to have a lot of money in commodities. Part of the problem with this company is that it is in the iron ore business and the companies are all fighting for market share regardless of profits. He doesn’t like that type of business.

International mining companies are still in a phase of asset disposition. It is going to be a while before they get earnings growth. Prefers Canadian mid-sized companies in copper, but even then only a small position.

If you own, he would suggest you consider lightening up. It is going to be a long time before stocks like this recover. There are too many headwinds in this space. Take advantage of the fact that you gained money on the currency and redeploy it into something that has more upside potential such as a technology company.

Most of the large mining sector made a bunch of acquisitions over the last few years at the absolute top of the market. This one was right up there. They are all suffering from write-downs. They are going to rein in their capital expenditures. When the cycle starts to do well, they will respond as well but he is not overly attracted to it.

Region is interesting. Saw a big move late last week. It will be a range-bound market for the next few months. Need to be a trader and not an investor.