The world’s top value investors love it when their best stocks ideas are selling at bargain-basement prices. For those investors, companies offering fire-sale prices become no-brainer buys. So regular investors like you and me would do well to emulate the masters and look at companies offering a “buy one-get one” sale on their stocks.
Considering the anticipated shortage of platinum group metals, the prospects for the auto industry to sell 15.3 million cars this year, and a pending mine expansion, you’d expect palladium miner North American Palladium Ltd (USA) (NYSEMKT:PAL) to be doing much better than it is. But other than a few brief periods of rising expectations, its stock has been on a slow, steady decline.
Still you’ll want to do your own due diligence before buying in to see if this is really a chance to pick up a quality stock at a severe discount.
North American Palladium snapshot
|Market Cap||$262 million|
|Revenues (TTM)||$156 million|
|1-Year Stock Return||(44.8%)|
|Return on Investment||(3.1%)|
|Dividend and Yield||N/A|
|Estimated 5-Year EPS Growth||0%|
|% Below 52-Week High||(51.6%)|
Let’s just make sure there’s nothing more seriously wrong with it before you go and plug it into your portfolio.
Although platinum group metals have some diverse applications in industry and jewelry making, the primary use is in the auto industry’s catalytic converter exhaust system, according to NAP’s primary competitor, Stillwater Mining Company (NYSE:SWC). The U.S. Geological Survey estimates that as much as 58% of palladium goes toward the auto industry, with 26% used for jewelry. Electronics and dentistry account for other significant usages.
So the health of the auto market remains of paramount concern, and in the U.S., at least, it seems to have regained its footing. According to the analysts at WardsAuto, seasonally adjusted light vehicle auto sales will reach 15.33 million in 2013 based on February’s sales numbers, an increase from January’s 15.22 million SAAR. Sales have been stronger than expected, with General Motors Company (NYSE:GM), Chrysler, and Ford Motor Company (NYSE:F) all recording better-than-expected sales. The industry sold 12.8 million vehicles in 2012.
The growing demand for cars will place new demand for platinum group metals, even as supply concerns mount. South Africa has been beset by strikes, and Zimbabwe said last month it would seize dozens of hectares of land leased by platinum miner Zimplats Holdings. It’s a smaller amount than what comes from top producer South Africa and second place Russia, but it adds to the supply constraints already being felt. Earlier this year, it was rumored that Russia’s state stockpiles had almost been exhausted, as inventory sales plunged 68% in 2012. Russia flooded the market for years with inventory sales, keeping prices in check, but now they’ll probably be on the rise once again as that supply dries up.