The Chart du Jour

Fallen Canadian

March 6, 2001

By, Barclay T. Leib

Once upon a time Inco was one of the premiere mining companies in North America, and certainly a major force in base metals production -- particularly nickel. Then they bought out Diamond Goldfields at a high price to gain control of the largest untouched nickel deposit in North America, and the company has largely been slipping and sliding downhill ever since. In between 1995 and 2001 for example, Alcoa, the largest aluminum manufacturer in the U.S. doubled in value, and currently trades at a P/E of 21.5. Inco, by comparsion over the same period of time has halved in value, and currently trades at a P/E of just 9.5. A large debt burden and constant regulatory hurdles on their new nickel properties have been the ever-present drags on performance.

But a month ago, Inco's CEO was ousted. The stock has been showing good relative price behavior even while the overall equity market has been weak. Our Fibonacci bands on the monthly chart further suggest an eventual recovery toward a $30 U.S. price target.

We like Inco here far more than we like Alcoa -- particularly as the U.S. economy softens and aluminum demand for auto production isn't likely to be particularly robust.

So here then is yet another paired trade to add to our previous suggestion of long CSG versus short KO. With so many of these ideas recently percolating in our heads, maybe Sand Spring Advisors should open a long-short hedge fund itself.


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