Small-Cap Industrial Play with Excellent Prospects into 2015
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Small-Cap Industrial Play with Excellent Prospects into 2015
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The first-quarter gross domestic product (GDP) growth suggests some stalling in the economy, but this is expected to pass as we move forward into 2015 and the economic renewal picks up, which will generate a buying opportunity.
A small-cap stock I like as a buying opportunity and play on the economic renewal going forward is Horsehead Holding Corp. (NASDAQ/ZINC).
While the stock is up 70% from its 52-week low and has been easily outperforming the S&P 500 over the past year, I believe the stock still has decent upside potential and could be a buying opportunity, especially as the economy strengthens.
The company’s stock chart shows the steady upward trend in place since November 2012. Note the bullish golden cross with the 50-day moving average (MA) above the 200-day MA, as reflected by the blue oval. We are also seeing a bullish ascending triangle that could signal more gains ahead. A break at $18.00 could see a move to above $20.00, based on my technical analysis.
Chart courtesy of www.StockCharts.com
Via its subsidiary Horsehead Corp., the company is a fast-growing producer of specialty zinc and zinc-based products made via the use of recycled materials.
In a move to improve output and efficiency, the company closed its old facility Monaca and opened a new facility named Mooresboro in North Carolina. The capacity at the new plant once it gets up to speed will be roughly 155,000 tons of zinc annually.
The opening of the new plant will aid the company in producing better fabricated steel products along with raw materials found in the manufacturing of rubber tires, alkaline batteries, paint, chemicals, pharmaceuticals, and stainless steel.
The company’s products include zinc metal used as a protective coating to products such as pipe and guard rails, heat exchangers, and telecommunications towers.
As the economy grows, so will the company’s business, making the stock a possible buying opportunity.
Fundamentally, Horsehead is sound after beating the Thomson Financial consensus earnings-per-share (EPS) estimates in the last two straight quarters.
In the first quarter, the company beat consensus EPS estimates by $0.06 per diluted share, or 75%. This followed the fourth quarter, in which it beat EPS estimates by a 207% margin.
Sales in the first quarter came in at $110.06 million, which was lower on a year-over-year basis due to lower shipments of zinc products.
The sales growth is expected to improve heading into 2015, creating a possible buying opportunity. Sales are estimated to grow 6.9% to $472.62 million this year, but this will be ramped up to 19.7% growth to $565.94 million in 2015, according to Thomson Financial consensus estimates.
The earnings picture is also estimated to follow sales higher. Horsehead is expected to earn $0.36 per diluted share this year following profits of $0.13 per diluted share in 2013. The big move will be in 2015, when the company is estimated to make $1.25 per diluted share, which makes for a good buying opportunity.
The best way to play Horsehead at this time, given the advance, is to look at the stock as a buying opportunity on overall stock market weakness.
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