Here are 2 Ways to Invest Beyond the Obvious
Mining for natural resources is big business, with headline grabbing players like BHP Billiton and Rio Tinto getting most of the attention. When you push past the big players, however, there are some miners that have found potentially lucrative niches to exploit, like Molycorp and Cameco .
In the mainstream
Diversified miner Rio Tino offers quick exposure to a portfolio of natural resources, including iron ore, copper, aluminum, and coal. It's a virtual one-stop shop, providing the materials that the world needs to keep growing. For example, coal miner Peabody Energy expects 425 gigawatts of new coal-fired electric plants to be built over the next four years. It also believes steel production will grow enough to require around 150 million tons per year of additional metallurgical coal.
That's good news for globally diversified Peabody, of course, but also for Rio Tinto. Not only does the company sell coal and iron ore for steel, but you can't build power plants without copper. That puts Rio in a position to benefit from multiple trends and multiple aspects of the same trend. However, if coal prices start to jump, Peabody's narrow focus on coal will make it the bigger beneficiary. Rio's diversification inherently limits the benefit from any one commodity.
That's the trade-off you make when buying a miner like Rio versus a focused player like Peabody. Coal, however, is a pretty big market with plenty of publicly traded participants. What about niche markets like uranium and the so-called "rare earth" metals?
That's where a company like Cameco comes into play. It is the world's largest publicly traded uranium miner. It's market cap is a little under $8 billion compared to Rio's market cap of nearly $100 billion. Although nuclear power has a bad name, particularly after Japan's Fukushima disaster, countries are still building nuclear power plants. There are nearly 70 under construction right now, with another 20 or so on the drawing board.
That's good news for uranium demand and Cameco's top and bottom lines. Although uranium prices are under pressure today, steady demand growth looks almost certain. Rio Tinto also mines uranium so you could get a little exposure that way, but Cameco only mines uranium making it a much more direct way to benefit from a uranium upturn. It's very much like Peabody in that way.
Another name to watch is Molycorp. Although the uranium that Cameco mines is well known even though it's a niche market, Molycorp mines for far more obscure materials like cerium, neodymium, and praseodymium. If you haven't heard of these, don't feel bad—high school was probably the last time you saw their names.
The thing is, these elements are important in fields ranging from consumer electronics to renewable energy. And the $1 billion market cap company is a big player, with operations in 11 countries. It's also vertically integrated, owning both mines and the facilities to create end products like neodymium-iron-boron magnet powders (try saying that 10 times fast).
Although Molycorp has lost money in seven of the last 10 quarters, the products it makes are unique and likely to see increasing demand over time. And, its core markets are starting to recover after a difficult stretch. Still, the stock has fallen on hard times after running up in price following its IPO, but that could present you with an opportunity to jump aboard this niche miner.
Beyond the big boys
You don't need to look beyond industry giants like Rio Tinto and BHP to get exposure to important natural resources. However, if you desire exposure to niche markets, you should take the time to look at Cameco and Molycorp. Their singular focuses increase risk, but could also provide for more upside than the diversified miners offer.
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The article Here are 2 Ways to Invest Beyond the Obvious originally appeared on Fool.com.Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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