Worst stocks to reverse with commodity profits rising 18%

Asphalt, Cement

Vulcan Materials Co., an asphalt and cement supplier, is projected to return to profitability for the first time since 2009, according to analysts’ estimates compiled by Bloomberg. Federal spending on highway construction has risen 11% this year, reaching the highest level since 2010, according to Bloomberg Industries research.

The S&P 500 gauge of raw-material producers is made up of companies that manufacture chemicals, plastics, construction materials, packaging products, metals and minerals. It excludes oil and natural gas firms, such as Exxon Mobil Corp., and crop processors, like Archer-Daniels-Midland Co.

Earnings season starts tomorrow with Alcoa Inc. scheduled to release third-quarter results after the U.S. market closes. Profit at the New-York-based aluminum producer probably doubled during the quarter to 6 cents a share amid higher demand from the aircraft and automotive industries, according to analysts’ estimates compiled by Bloomberg.

Budget Stalemate

S&P 500 companies may boost third-quarter profit by 1.7%, the slowest pace in a year, the estimates show. The U.S. equity benchmark fell 0.1% to 1,690.50 last week after the first government shutdown in 17 years and weaker-than- forecast growth in service industries. The 31 companies in the S&P Materials Index rose 0.8% for the week, the second- biggest gain among 10 main industries.

Stocks retreated as the stalemate between congressional Republicans and Democrats raised concern of a default if lawmakers can’t agree to raise the debt ceiling by the time the government runs out of borrowing authority. Bill Gross of Pacific Investment Management Co. and BlackRock Inc.’s Larry Fink said last week that the standoff will be resolved soon.

The S&P 500 dropped 0.8% at 9:41 a.m. in New York today as Speaker John Boehner said the House can’t pass an increase to the U.S. debt limit without packaging it with other provisions.

Layer In

Commodity shares have lagged behind the market this year as China, the world’s biggest consumer of everything from copper to coal, grows at the slowest pace in more than two decades. Raw- material producers have climbed 13%, the fourth-smallest advance among groups in the S&P 500. The U.S. equity benchmark is on track for the biggest annual gain since 2009, rallying 19% and bringing the gains since the start of the bull market to 150%.

“We are looking for opportunities to layer in because I do think an awful lot of bad news has been priced into the stocks,” said Leo Grohowski, chief investment officer of New York-based BNY Mellon Wealth Management, which oversees more than $175 billion of client assets. He said the firm is underweight raw-material companies.

The last time commodity stocks underperformed the S&P 500 for this long was in the four years through 1998, when technology companies soared during the Internet boom. After the bubble burst, shares of mining companies and chemical producers gained momentum as China’s economy accelerated, helping lead the bull market between 2002 and 2007.

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