Alcoa, AK Steel, and More Basic Materials Stocks Insiders Love

Chemtura Corporation (NYSE:CHMT), a $2.4 billion market cap chemicals company, has had two insiders but the stock in the last three months. Billionaire James Dinan’s York Capital reported a position of 2.8 million shares at the end of September (see more stocks York owns). Demand for chemicals is also dependent on macro factors and the beta is just above 2 here as well. Chemtura carries trailing and 2013 price-to-earnings multiples of 21 and 13, respectively, as Wall Street analysts project high earnings growth in the current year. The stock has risen 70% in the last year as general market sentiment has become bullish as well.

Rare earth materials provider Molycorp Inc (NYSE:MCP) is another basic materials stock that insiders have been buying. The market is even more bearish here than on AK Steel: the stock price is down over 70% from a year ago and over 60% of the float is held short. Molycorp also carries a very high beta, at 3.8. While revenue was up 49% in the third quarter of 2012 compared to the same period in the previous year, the company remained unprofitable and is expected to remain in the red for 2013 as well. Molycorp did report over $400 million in cash on its balance sheet in its most recent quarterly report.

Two Board members have been increasing their holdings of $1.9 billion market cap steel recycler and producer Commercial Metals Company (NYSE:CMC). Carl Icahn has a large position in Commercial Metals (research more stocks Icahn likes). While the company is profitable- and actually doesn’t look that expensive in terms of its earnings, with a trailing P/E of 13- it did report a 10% drop in sales in its fiscal quarter ending in November, along with a 54% decrease in earnings. It might be best to avoid the stock.

Disclosure: I own no shares in any stocks mentioned in this article.

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