Growth Stocks: Copper Maker Shines, Stages A Comeback On White-Hot Earnings Growth

As growth stocks struggle to shine in this week’s market, today’s IBD 50 Stocks To Watch pick is a copper manufacturer that’s beaming with potential.

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Demand for Mueller Industries (MLI) copper products has increased broadly across multiple sectors while revenue rose thanks to recent acquisitions. Moreover, Mueller’s focus on debt reduction is attracting renewed investor interest.

Shares have been building a double-bottom base with a 60.83 entry since November, according to MarketSmith. The stock had a powerful 22% run higher from its most recent October breakout. But as the market downturn accelerated in January, Mueller shares also declined and fell below key moving averages.

The stock turned around on Feb. 1 after Mueller’s earnings impressed investors and boosted shares back above the 21-day and 50-day lines shortly thereafter. The stock remains 5% below the proper entry as of the close on Thursday.

Despite triple-digit year-over-year earnings growth in recent quarters, Mueller maintains a low P-E (price-to-earnings) ratio of just 7 and offers investors growth at a reasonable price.

The stock dipped on Thursday, down around 1%, but its relative strength line is still showing powerful action as it notches a new high on the weekly chart. Long-term institutional interest has been rising as fund sponsorship climbed to 502 funds in the most recent quarter. This was up from 409 funds a year earlier.

On the downside, this is a stage three base, which means it has a lower chance of working out than an earlier stage base. Additionally, investors should be wary of the overall market conditions. As the market outlook remains in “uptrend under pressure,” the chances of a successful break out are considerably reduced.

Top Growth Stocks: Copper Manufacturer Shines

Mueller Industries manufactures a variety of products made from aluminum, steel, plastics and most importantly, copper. From copper tubes and brass forgings to refrigeration and plumbing valves to faucets and other specialty products, its parts are sold to a variety of sectors. The company is comprised of a family of operations that run under the Mueller Industries umbrella and sell to industries such as building construction, appliance, defense, energy, automotive and more.

The 104-year-old metals manufacturer has seen significant revenue and earnings growth over the past few years, and a serious acceleration in the most recent quarters. The company continues to benefit from ongoing economic recovery in the housing construction and remodeling segments. Renewed interest in construction, utility upgrades and infrastructure repairs has led to increased demand for Mueller’s products.

EPS for 2021 grew to $8.25 a share, up 234% from $2.47 in 2020.

Copper Prices Rise Significantly In 2021

Alongside its top-line growth, the Collierville, Tennessee-based firm has also reduced debt, consolidated subsidiaries and sold off businesses that were not providing adequate return on investment.

Debt reduction of $230 million in the third quarter of 2021 helped boost its bottom line. Year-over-year earnings growth came in at 284%, 296% and 245% for the past three quarters, respectively. Sales rose 59% and 42% vs. year-ago levels in the two most recent quarters.

“Our strong financial results were driven by continued favorable market demand and our teams’ exceptional operating performance in the face of industry wide labor and supply constraints and rising costs. Building construction demand remains solid, and backlogs in most businesses continue to build,” said CEO Greg Christopher in a recent statement.

Despite the price of copper rising significantly in 2021, Mueller managed costs effectively. The firm noted the average price of copper rose over 51% in 2021 vs. 2020 but was able to pass on these increases to customers. However, continued inflation in copper prices could pose a potential risk, should further increases begin eating into margins.