Tuesday’s session saw an emergency Fed cut by 75 basis points to thwart an economic recession. The debate continued as to whether the move was enough or timely but the panic action could signify a near term bottom to the action with the Fed’s scheduled meeting next week acting as an additional catalyst.
With overall market sentiment in mind, a wise trader will look for areas to hide their cash until a confirmed bottom can be seen. Long term investors saw the early morning session as a bargain sale, picking up some extremely cheap names from the opening panic selling.
Some will choose gold as a flight to quality, while others will look to treasuries with some just staying in cash. But another possible attractive place could be the ground. If long termers feel that the capitulation recently occurred in equities, commodity minerals may have recently experienced one as well.
Shanghai copper and zinc futures fell by their 4% daily limit again on fears of a recession in the United States. The action moved the metals closer to their long term moving averages which could eventually give strength to a new rally.
The fall in price of the base metals has had a detrimental effect on Horsehead Holding Corp. (ZINC) stock over the past few days. Shares have fallen from the $15.50 area to lows of $12 a share. The Company is the largest zinc producer in the United States and the leading manufacturer of value-added zinc products including zinc oxide and zinc powder. Leading the industry as an integrated producer, as well as the world’s largest producer of zinc from recycled sources, Horsehead’s electrothermic smelting facility, the only one of its type in the Western Hemisphere, provides unique capabilities allowing it to utilize the most diverse range of zinc-bearing feed materials.
The Company’s facilities process hundreds of thousands of tons per year of electric arc furnace (EAF) dust generated by the steel industry. EAF dust is a listed hazardous waste. It contains approximately 20% zinc from galvanized scrap melted by steel mini-mills. The Company recently entered into an agreement with Nucor Corporation which expanded its existing commercial relationship with Nucor by recycling Nucor’s EAF dust on a regional basis.
The Company also started up a second Waelz kiln at its Rockwood, Tenn., location. The Waelz kiln utilizes Horsehead’s proprietary know-how for recycling EAF dust. Horsehead broke ground at the Rockwood facility in December 2006 with expectations to be operational by the end of 2007. The new kiln will double the current EAF dust processing capacity at that location.
The latest earnings report shows some strong growth that is flying under the radar of many traders. For the nine months ended September 30, 2007, net income was $73.4 million, or $2.40 per diluted share, on sales of $426.4 million. For the nine months ended September 30, 2006, net income was $38.3 million, or $1.42 per diluted share, on sales of $346.7 million. With debt at $200 thousand and cash of $77.4 million on the books, the name is well suited to withstand a recessionary phase in the economy even while it continues its expansion. With that in mind, investors would be wise to watch.
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