The Materials Sector and more specifically, the Iron Ore Mining industry, doesn’t get much love these days. Two Iron Ore makers we track at Zacks are down -32% YTD.
However, I caught a bullish Zacks Industry Rank thread I wanted to follow: The Iron Ore Mining industry group is currently ranked at #21 out of 256 Zacks Industries in late May 2020.
That’s a top 10% ranking.
This Iron Ore Zacks Industry Rank has also been steadily rising over the last 8 weeks, from #101 to #83 and then to #21.
We've all heard the old adage — 50% of a stock's price movement can be attributed to the group it's in.
In fact, studies have shown us that just getting into an average stock in a strong industry is likely to outperform a great stock in a poor industry. 50% of a stock's price movement can be attributed to its industry.
Of course, this does not mean that you can just pick any stock in a top group and expect to make money. But it does underscore the importance of sticking with the best industries.
Back in the middle of the April 2020 pandemic, a fellow by the name of Fredrik Arnold, who calls himself “The Dividend Dog Catcher,” did two intriguing stock screens. These were also focused on the beaten-up and overlooked Materials Sector.
Oftentimes, large-cap stock picks drawn from overlooked industry groups can offer substantial dividend returns and share price appreciation.
Here are his two treasure lists:
His top-ten Materials Sector equities by dividend yield were: ACAZF, CBUMY, EVA, SIM, MTGRY, KIROY, AFBOF WLKP, FSUGY and KUMBF. These 10 picks offered dividend yields ranging from 8.81% to 13.40% annually.
His top-ten Materials Sector firms by broker-target price upside estimates were: NTR, UFS, POL, CMP, VALE, GLT, SWM, WLKP, SIM, and top dog, OSB. These 10 picks averaged a +59.41% share price upside, from current prices to their average broker target price.
When I looked specifically into the Iron Ore Mining industry, I found the two large cap picks offered dividend and value stock share price appreciation potential.
Yes. Both were caught by The Dividend Dog Catcher screens!
Here they are:
(1) Fortescue Metals (FSUGY): At the moment, this stock is a Zacks #3 Rank (HOLD). This name has a $27.5B market cap at the current $18.23 a share price. I see a Zacks Value score of A and a Zacks Growth score of A.
- The forward P/E ratio is quite low at 6.53. The market beta is 1.28.
- There is a very substantial dividend of $1.81 a year (10.09% annually).
Fortescue Metals Group Ltd. is engaged in the exploration and mining of Iron Ore properties. Its properties primarily include the Cloudbreak and Christmas Creek mine sites and the Solomon project located in Pilbara, Western Australia.
Fortescue Metals Group is based in East Perth, Australia.
The stock has been on a momentum run since 2019, when shares priced at just $6 each. You can’t easily beat that 10% dividend, either.
(2) Vale SA (VALE): At the moment, this stock is a Zacks #3 Rank (HOLD). This name has a much bigger $46.05B market cap at a lower $9.11 a share price. In 2019, this stock was trading north of $14 a share. In pre-pandemic 2020, it was $13 a share.
- I see a Zacks Value score of A and a Zacks Growth score of D.
- The forward P/E ratio is low at 9.05. The market beta is 1.02.
- There is a very substantial dividend of $0.59 a year (6.57% annually).
Brazil-based Vale S.A. is one of the world’s largest mining companies. It is the world’s largest producer of Iron Ore, Iron Ore Pellets and nickel. It also produces manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals (PGMs), gold, silver and cobalt.
Vale has a logistics network integrating mines, railroads, ports and ships, which has provided it an edge in the Iron Ore market. The company has through the years distributed its products to various countries.
Brazil is a commodity-rich country in a deep struggle with this pandemic. The currency (the Brazilian real) has been driven lower and lower. Its neighbor Argentina is belly up.
To wrap this short piece up, what top-down silver lining is seen here?
Not much appeared immediately. After putting this piece together, I thought again.
There is the rising Zacks Industry Rank, very tasty annual dividend yields for the patient investor, and the potential for mainland China’s economy to keep picking up under the usual centrally-planned stimulus. The world’s manufacturer always seeks to do fixed asset infrastructure investments to lift its internal economy up.
In that vein, a stock from the Material Sector and more specifically, the Iron Ore sector, shapes up to be an interesting contrarian investing opportunity.