Maybe when Edvard Munch painted “The Scream,” he had the Commodity Investors expression in mind. Commodity stocks have fallen relentlessly over the past month despite numerous sell side houses trying to justify their NAV’s and DCF valuations. There is no such thing as “Value” where these stocks are concerned. Their “value” is determined by what commodity price you input into your model to generate your earnings. You get that wrong and miss the cost inflation and margin capture story, your earnings are all over the place. The dividend yield argument is their last saving grace. Those hopes were squashed during the latest reporting season where management reiterated their commitment to capex and growth, not returning cash back to shareholders. As Commodity prices keep falling, the free cash flow (FCF) balances diminish considerably. Unless you have a strong case why Copper cannot head to $7000/t, Oil to $100/bbl, or Iron Ore to $100/t, how can you model what the earnings for these stocks should be?
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