5 Stocks Seen Plunging as Metal Prices Melt

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Metal and mining stocks have plunged in recent weeks as the prices of commodities sink in the face of a strengthening U.S. dollar, as measured by the SPDR S&P Metals and Mining ETF (XME). Since the start of June, the ETF has dropped by more than 17%, and some stocks within that ETF have had even steeper declines. 

Mining companies Coeur Mining, Inc. (CDE), Cleveland-Cliffs Inc. (CLF), Freeport-McMoran Inc. (FCX), Rio Tinto PLC (RIO) and BHP Billiton Ltd. (BHP) have already seen their stocks fall dramatically, by as much as 37% from their 2018 highs. Now, these stocks may drop by as much as an additional 13%. 

FCX data by YCharts

Freeport McMoran's is nearly 32% off its 2018 high, and the technical chart suggests shares fall by an additional 13%. The stock has fallen below a critical level of technical support at $13.80, to its current price around $13.70. The next level of technical support does not come again until $11.85. (For more, see also: The US Dollar Is Breaking Out.)

Additionally, volume levels for Freeport have recently been rising on days when the stock is trading lower, suggesting more sellers are getting involved. The relative strength index has hit oversold levels, below 30, but has yet to show signs to indicate a reversal of the downward trend. 

Analysts have been slashing their earnings and revenue estimates for the company's upcoming third quarter over the past month. Earnings are forecast to be $0.44 per share, 20% lower than the previous forecast of $0.57. Revenue estimates are for $4.9 billion, about 3% lower than earlier estimates of $5.1 billion. 

FCX EPS Estimates for Current Quarter data by YCharts

But not all stocks are facing as steep a decline as Freeport. BHP and Cleveland-Cliff's stocks have both fallen roughly 10% from their 2018 highs. But the technical charts suggest shares of BHP fall an additional 7%, to $43.50 from its current price of roughly $47. Meanwhile, the chart for Cleveland-Cliff indicates a further decline of 6% to $8.90, from its current price of roughly $9.85. (For more, see also: 3 Charts That Suggest Base Metals Will Shine in 2018.)

Should the dollar continue to strengthen, further pushing commodity prices lower, shares of the metal and mining stocks are likely to fall further. However, should that trend reverse, this group could see a sharp rally off its lows. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.