Ore Mining And Steel Fund Taps Strong 2017 Earnings Estimates - Investor's Business Daily

At the end of 2015, the outlook for commodity prices wasn't rosy. Weak oil prices, a rising dollar and forecasts for uncertain economic recovery in China kept estimates for the year to low single digits.

Among ETFs, that put the IShares MSCI Global Metals & Mining Producers Fund (PICK) near the bottom of a brutal four-year decline. But the forecasts for commodity prices were wrong.

As a result, MSCI Global Metals & Mining Producers on Friday traded 52% higher for the year, and 95% above its January low.

A host of factors — led by promises of reduced steel production in China — changed early in the year. Prices for iron ore, coal and other commodities ramped sharply higher. A four-week spike and sell-off in commodities and in mining stocks during April and early May raised fears of a bubble. But following a brief consolidation, prices simply stepped back into an uptrend.

MSCI Global Metals & Mining Producers' top holdings were positioned to take advantage of the cyclical turn. The funds very top positions are in diversified ore miners. Australia's BHP Billiton (BHP) holds a 9.3% weighting in the fund. U.K.-based Rio Tinto (RIO), and Glencore on the London Stock Exchange, weigh in at around 7% apiece.

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IBD'S TAKE: BHP Billiton ranks 11th in the Mining-Metal Ores group, based on key stock gauges, including earnings, sales and stock price performance. To see which stocks rank in the top four of the group, including a BHP Billiton sister company, check out IBD Stock Checkup.

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U.S. steelmaker Nucor (NUE) and Japan's Nippon Steel & Sumitomo Metal have weightings near 3%. Other names in the top 10 holdings include Arizona-based miner Freeport-McMoRan (FCX) and South Korean steel maker Posco (PKX).

For chart readers, MSCI Global has this year presented an exercise in frustration. The ETF peaked in April, then pulled back and consolidated below that high through the end of September.

A two-week pullback from a Dec. 8 high has left the fund finding support at its 10-week moving average. If it holds that support and either rebounds or builds a base pattern, it could create a buy opportunity.

A cut below that support — particularly a drop in heavy trade — would flash a sell signal to current shareholders.

Going into 2017, a number of the factors that held commodities views down at the end of 2015 are still in place. The dollar is rising even more sharply, and China is now saying it is content if growth slips below the 6.5% mark that it originally targeted over the next four years.

Rising oil prices and improving U.S. GDP growth offset those negatives to some degree. But BHP Billiton, in a statement in mid-October, said its oil and gas markets appeared set to improve over the next 12 to 18 months. Iron ore and metallurgical coal prices were "stronger than expected," the statement said, but the company expected supply to continue to outgrow demand "in the near term."

Barclays has forecast a broad-based recovery in commodities prices during 2017, based on improving demand. Consensus views place earnings growth for BHP at 47% in 2017, with estimates of 50% growth for Rio Tinto. Freeport-McMoRan is poised for a 407% earnings leap, as it continues making its way back from a loss of 13 cents per share in 2015.

The IBD ETF Leaders index shows the performance of a model portfolio of exchange traded funds that are leading the overall market. A computer algorithm selects the ETFs based on relative strength and other objective performance ratings, with periodic adjustments for market trends and conditions. The universe from which the ETFs are selected includes the funds listed below.

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