Worst stocks to reverse with commodity profits rising 18%

Super Cycle

Commodity supply constraints and demand from emerging markets mean it’s premature to talk about the death of the super cycle that brought a longer-than-average period of rising prices, McKinsey & Co. said in a Sept. 26 report. The New York- based consulting firm said producers are being forced deeper into remote areas of the world to secure supplies that require increasingly sophisticated technology to extract as consumption expands.

LyondellBasell has benefited from the boom in natural gas production from U.S. shale formations that pushed prices down 52% in the past five years.

The company produces ethylene, a chemical used in everything from shampoo to garbage bags, from natural gas at about 10 cents a pound, Doug Pike, the company’s vice president of investor relations, said at a conference on Aug. 13. That’s a lower cost compared with companies in Europe and Asia that make ethylene from crude oil for about 50 cents a pound, he said. Analysts predict the Houston-based firm will boost profit 17% next year. The shares are up 32% in 2013.

Housing Recovery

The housing recovery will boost earnings at Vulcan Materials as demand for building materials increases, Chief Executive Officer Donald James said on an Aug. 1 call with analysts. The Birmingham, Alabama-based company may earn 63 cents a share next year, compared with a loss of 10 cents a share in 2013, according to analyst estimates compiled by Bloomberg. Vulcan shares have gained 1.5% this year.

Allegheny Technologies, which produces specialty metals used in manufacturing, is poised to boost profit to $1.31 a share next year, from 21 cents in 2013, analyst estimates compiled by Bloomberg show. Prices for the company’s key raw materials are near a bottom, Richard Harshman, the company’s chief executive officer, told investors on a July conference call. The shares rallied 16% during the third quarter after tumbling 17% in the previous three months.

“The companies have lagged as commodity prices have come under more stress the last few years,” Eric Teal, who helps oversee $5 billion as the chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina, said by phone. “The outlook is optimistic. The emerging markets will continue to produce high levels of GDP growth. Fundamentally, they look attractive.”

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