Strategic Metals: From Air to Sea

04/03/2014 7:00 am EST

Focus: STOCKS

Strategic metals and specialty materials are vital to a host of major; the time to invest in the makers of these "miracle materials" is now, as global recovery boosts demand, explains John Persinos in Personal Finance.

Two of the strongest and most valuable materials in existence are carbon composites and titanium. They’re crucial in the manufacture of a wide range of products, especially in the thriving industries of aerospace, energy, defense, and high technology.

The standout stocks in this segment are Hexcel Corp. (HXL), the leading producer of carbon composites, and Allegheny Technologies (ATI), which dominates the market in titanium.

Hexcel is the largest US-based producer of carbon fiber and the number one producer of aerospace composite materials. Aircraft made from composites enjoy reduced weight, improved fuel burn, and better resistance against corrosion and damage.

Hexcel reported fourth-quarter 2013 earnings per share of $0.46, for a year-over-year increase of 28%. Fourth-quarter revenue reached $427 million, up 10.2%.

Full-year revenue hit $1.67 billion, a 6.3% increase from 2012. Full-year EPS was $1.85, a 19% gain. Management projected another strong earnings performance this year, with EPS growth hitting the mid-teens.

A continuing stream of orders from aircraft, automotive, and consumer goods companies will keep this carbon composite purveyor on an earnings roll.

Meanwhile, titanium boasts the highest strength-to-weight ratio of any metal. In its unalloyed form, it’s as strong as some steels but almost 50% lighter.

The resurgent aerospace sector is especially hungry for titanium. To be sure, carbon fiber composites are in great demand, but today’s advanced flying machines also require titanium—lots of it.

In the US, the aerospace industry accounts for more than 70% of titanium demand, while industrial applications predominate in other countries, such as China.

Oil and gas engineering applications also are a major growth opportunity for Allegheny, as the booming energy sector increasingly relies on the company’s super-strong products.

The search for hydrocarbon reserves is going deeper and farther, into remote areas far beneath the ocean surface that were once considered impossible to tap for oil and gas production. Titanium alloy materials are crucial for the construction of oil pipelines and well tubing.

Allegheny reported fourth-quarter EPS of $1.62, up dramatically from $0.10 in the year-earlier period. This performance substantially beat analysts’ estimates of an EPS loss of $0.19.

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