Basic Trade analysis for metals, mining and basic materials

On 5/4/12, Zenith put out a post on the FPA(Financial Planning Association) website to garner a discussion with respect to the commodity producers given the European uncertainty and a slowdown in China. At that time we examined and passed on a beaten down investment in the S&P Global Materials ETF (MXI).

On 5/14/12, Zenith put out a post on the FPA website reiterating our disdain for this area of the equity markets as we reviewed all three of the ETFs mentioned below.

Zenith continues to be risk averse especially in the asset classes with the most volatility and ties to global growth. We continue to avoid commodity indexes and are finding little value in the aggregate base materials company stocks.

XME-S&P Metals and Mining


90% Basic Materials

P/E 14.88x and 12.48% EPS Growth

P/CF 7.83x and .87% Cash Flow Growth

P/REV .59x and 7.56% Sales Growth

Book Value Growth 4.48%

MXI-S&P Global Materials

Canada14,UK13, Aus 12, US 23

90% Basic Materials

P/E 11.61x and 9.07% EPS Growth

P/CF 6.76x and -29.91% Cash Flow Growth

P/REV .86x and -30.53% Sales Growth

Book Value Growth 5.36%

IRV-S&P International Materials Sector

90% Basic Materials

Can 22, Aus 18,UK17, Jap 14, Germ 8

P/E 11.56x and 9.82% EPS Growth

P/CF 7.07x and -30.57 Cash Flow Growth

P/REV .8x and -31.6% Sales Growth

Book Value Growth 3.28%

While some of the metrics do appear reasonable sales and cash flow growth are both terrible and there is simply to much uncertainty with regard to Europe and the Chinese “slowdown”.

Each of these instruments is down considerably since we first advised against them and while they may rebound, the climate is too uncertain for a high octane bet. We do not recommend a placement at this time.

The fundamental metrics provided by Schwab