Dropping to the third stock in the iShares Dow Jones US Basic Materials ETF highlights a position of approximately 7.2% in Praxair, Inc. (NYSE:PX), another chemical company. The 10-Q released on April 26 shows some more unimpressive results that seem to be consistent with this sector. Gross sales from period-to-period were basically flat, net income dropped, the number of shares outstanding decreased, and basic earnings per share declined. The price chart below shows another stock that is just moving sideways. I do not see any prospects for better-than-market-rate returns here, either.
The fourth stock held in the iShares Dow Jones US Basic Materials ETF is Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). The current allocation to this stock is 6.0%. This is a mining company, and the three main materials it brings to market are gold, copper, and molybdenum.
The first quarter of 2013 earnings announcement showed that earnings per share were $0.68 versus $0.80 for the first quarter of 2012. What is more significant is that the net results were achieved by the sale of more copper and molybdenum, and less gold.
Another highlighted item was the completion $10.5 billion in debt to be used for the pending acquisition of Plains Exploration and Production. This acquisition is on hold because the price Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) offered is considered too low.
These factors, in my opinion, make this stock unattractive. Adding to this is the recent and volatile drop in the price of gold, a key component of the business strategy. It appears in the price chart below that these negative factors are reflected accordingly.
In my analysis of this sector it appears that this is not the place to invest. Perhaps the only viable strategy for this group is to write options against it and collect ongoing premiums until such a time when a new trend develops and is confirmed. Even this concept is for the sophisticated investor that understands and accepts the risks of options.
The article A Flatlining ETF That Should Perform Better originally appeared on Fool.com and is written by Jeff Stouffer.
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