Cramer says there’s a bull market in nickel right now that is being fueled by the world’s voracious demand for stainless steel, of which nickel is an essential part. Prices have more than tripled since the first quarter of 2006, and there’s frenetic M&A activity going on as well. Norilisk Nickel and Xstrata, two of the biggest nickel concerns in the world, are involved in a bidding war for Lion Ore, another nickel play. CVRD bought Inco. Lundin Mining bought a Spanish nickel play. And BHP Billiton is already mining nickel in every corner of the world.
If Home Gamers wanted to play this market straight, Cramer recommends going with CVRD, the number-one nickel producer in the world. But consolidation is key in the industry right now, Cramer says, so the best way to make money is to look for potential takeover targets – companies like North American Palladium.
PAL costs about $10 a share and gets around 22% of its revenue from nickel. According to Cramer, there’s no analyst coverage, which means no one is paying attention, so he thinks a takeover bid could send this stock soaring.
There are a couple of reasons North American Palladium should be happy about its nickel business, Cramer says. The price for the metal was at $11.65 a pound last year, but now it’s trading at $23.85. Even if the company didn’t boost its nickel production, it still practically doubled its revenue from the business. That’s big news for a company that didn’t turn a profit last year.
Even better, says Cramer, is that in 2005 PAL unwound all its byproduct metal hedges in nickel, gold and platinum. Now this year it will fully realize the upside of higher nickel prices in the spot market – and those prices are climbing, even while PAL’s costs are dropping.
Cramer would even get behind this stock for the palladium, which we use in catalytic converters, but this is really about nickel, he says.
Bottom Line: If you want a commodity that’s in total bull mode, look no further than nickel. If you want to try to make a whole lot of money speculating on it, Cramer would go with North American Palladium.