Besides being fantastic potential inflation hedges, the largely undervalued metals and mining firms can potentially produce huge profits for their stockholders once the pickup in worldwide industrial production takes hold.
And precious metals — including gold — in addition to cutting-edge technology are integral to this intriguing sector.
But in covering possible impediments — primarily political and economic obstacles — to growth in the metals/mining group, I realized that I had overlooked one crucial negative …
… one that, if properly anticipated, can produce lucrative long-term profits for alert investors!
Words to Invest By
I came to this conclusion following an encounter with a woman who extended a single finger at me and uttered two impactful words.
It happened at a gym when a friend told me how well she performed at a recent bicycle race. I asked her if her new bike was constructed of some exotic lightweight alloy.
She made a fist with her little finger pointing out and thrust it upward; an indication that this slender lady could lift her racing bike with just one pinky digit.
Then she voiced two words that serious investors can expect to encounter frequently in the future …
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Yes, this amazingly strong but super-light material is quickly replacing many metals and alloys.
The ultimate impact on metals of carbon fiber as a key industrial material will have a profound impact on industries that consume its output.
For example, BMW is investing a reported $100 million in a factory in rural Moses Lake, Wash., to develop carbon fiber frames for its new model "i3" electric auto.
Obviously this material, which also makes up much of the new Boeing (BA) 787 Dreamliner, is moving well beyond lightweight bikes.
Key to carbon fiber’s future as an industrial sheet and load-carrying material is a reduction in cost. BMW seems confident that the cost of producing and fabricating it into finished components will fall rapidly.
Three publicly traded U.S. firms involved in carbon fiber production are profiled in the accompanying table.
Cytec Industries (CYT) supplies materials, including carbon fiber, for use in aerospace and defense, wind energy, automotive, recreation and other industrial segments.
All these industries will benefit from a strong, lightweight material such as carbon fiber, once the cost comes down and fabrication techniques develop.
With Cytec controlling only an estimated 3% of the world’s current carbon fiber sales, a single percentage point of market share would expand its sales of the material by one-third in addition to the growth of that entire sector.
Investors seem to already be recognizing CYT’s growth potential, as its stock price has moved from the low teens less than five years ago to the low- to mid-$90s now.
Still, with annual revenues less than $2 billion and market capitalization of $3.3 billion, the firm is relatively small for a material producer. That means loads growth potential.
Hexcel Corp. (HXL), while smaller in total annual revenue than CYT with an estimated 7% of the overall world market in carbon fiber, is more dominant in at material than CYT.
HXL’s carbon-fiber composite ("CFC") materials markets largely mirror those of CYT, as it supplies materials to commercial aerospace firms and the government. This includes military aircraft, space launch vehicles and satellites.
Other product offerings using HXL materials that lend themselves to carbon fiber include wind turbine blades, automotive components, bikes, skis and other recreational products.
HXL’s shares have climbed steadily from less than $5 in March 2009 to their current range in the mid-$40s.
Meet the Real Carbon Fiber ‘Kingpin’ …
While CYT and HXL would be accurately described as materials providers that include carbon fiber offerings, the purest U.S.-domiciled carbon fiber play would be relatively small Zoltek Companies (ZOLT) with annual revenue of only $141 million.
But investor expectations of CFCs’ potential are reflected in the fact that the stock market values its shares at more than 100 times earnings, giving the firm a market capitalization of $576 million.
Although ZOLT has captured an estimated 17% of the current world market for carbon fiber, its future investment potential is limited by a likely acquisition by Toray Industries of Japan.
This will elevate Toray, which already controls roughly 30% of the world’s carbon fiber market, to kingpin status.
Japanese producers currently dominate the carbon fiber market. In addition to Toray/Zoltek’s large slice of total world sales of the material, Japanese producers Toho Tenax and Mitsubishi Rayon each control an estimated 18% of world sales, with Nippon Graphite also participating.
Most of the world’s remaining carbon fiber materials needs are provided by Germany’s SGL Carbon SE, which has been working closely with BMW on the automaker’s ground-breaking CFC initiatives.
What’s the Best Way to Invest?
With non-U.S. firms currently dominating worldwide CFC sales, I’m watching Asian and German Exchange-Traded Funds to see if any invest heavily in international carbon fiber stocks.
Considering the potential of this material, I wouldn’t be surprised to see a carbon fiber ETF soon. If so, I will keep track of developments in this sector.
Total CFC sales are currently miniscule compared with metals, but businesses are always eager to gain an edge. Carbon fiber is in the early stages of a long-term growth trajectory. Some CFC materials might be a mainstay material in everyday products.
You can be sure that I will be on the lookout for worldwide investment opportunities in carbon fiber. Readers of Global Trend Trader will learn how to profit from this remarkable material.
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