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If you have a bullish outlook on the recovery of the global economy over the next 2-5 years, it is important to know which industries will likely perform the best coming out of a global recession. Daniel Moser of Seeking Alpha believes that the US is likely to begin experiencing economic recovery starting in 2010, and believes that mining companies may be the most attractive industry for long-term investment opportunities.

With China and the US implementing huge economic stimulus plans - $585 billion in China and $787 billion in the US – the amount of money designated toward advancing and expanding these countries’ infrastructure greatly impacts the attractiveness of investing in mining companies. Infrastructure improvement is heavily dependent on utilizing copper and other base metals, a major part of these companies’ business. During the recent global slowdown these companies have sold off to extremely distressed levels making their current trading prices very attractive, if you believe like we do that they will bounce back and provide long term rewards to shareholders.

Another reason to be bullish on mining companies at this time is the opportunity for financially strong companies to consolidate at attractive discounts. According to Moser, most industries make the mistake of acquiring assets during a booming period, but some of these firms will realize discounted prices when they purchase competitors now that valuations have improved. Yet another positive signal the author notes is that hedge funds tend to have a macroeconomic bias and frequently invest in firms that show signs of benefiting from a global economic recovery.

Moser also makes the claim that there is evidence that the U.S. will be running into inflationary problems which in theory would hurt these firms. However their involvement in the production of gold and silver along with the fact that these companies have considerable amount of foreign exposure and that a few are based outside of the U.S. will give them the ability to survive an inflationary environment in the US.

Of the companies on Moser’s list, we find a couple of attractive investments. Freeport-McMoran Copper & Gold (FCX) and steel mini-mills Nucor Corp (NUE) and Schnitzer Steel (SCHN) stand out the most. The mini-mills are more nimble and can adjust their production more quickly to meet demand, whereas US Steel (X) is bogged down with less-efficient operations. Additionally, Cliffs Natural Resources (CLF) is exposed heavily to legacy steel producer US Steel. 

Mining Companies and Their Implied Sales Growth Expectations

*AFG’s Value Expectation allows us to understand the imbedded Sales Growth, EBITDA Margins, and Asset Turnovers a company has to deliver in the future to justify its current trading price. In theory and in normal circumstances, if the imbedded future performance is very conservative relative to the company’s historical performance, the stock is regarded as undervalued. The above table displays the implied future sales growth of these mining companies assuming their EBITDA margins and Asset turnovers stay at the 5 year median levels.

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