Top picks 2012: Titanium Metals

Our top stock pick for 2012 is Titanium Metals (TIE), or TIMET for short.

The Dallas-based company produces and sells titanium sponge, melted products, and various mill products for commercial aerospace, military, industrial, and other applications. It also is a large recycler of titanium scrap.

In addition to making aircraft lighter and more fuel efficient, titanium is also used in oil and gas exploration, some automotive applications, and consumer products like golf clubs.

TIMET is more dependent on the commercial aerospace industry than the overall titanium industry as it shipped 66% of its mill products in 2010 to the aerospace industry.

In comparison, TIMET estimates that the broader titanium industry sent about 48% of its output to the makers of airplanes and their components.
As such, the company should be a big beneficiary of a strong aerospace cycle, and the launch of Boeing's 787 Dreamliner in particular.

While known for its use of composites, the Dreamliner nonetheless uses 116 metric tons of titanium per aircraft. By comparison, the popular single-aisle Airbus A320 uses only 12 metric tons of titanium, while the competing Boeing 737 uses 18 metric tons. Even the large 747 uses only 76 metric tons.

Boeing is currently only able to make about 2.5 Dreamliners a month, with a plan to gradually ramp that up to 10 per month by the end of 2013. Even at 10 per month, though, Boeing still has more than a six-and-a-half-year backlog of 787 orders to fill.

The airplane maker also just increased production rates on its 737 from 31.5 aircraft per month to 35 per month, and pushed production on the 777 to seven per month.

The need for lighter, more fuel-efficient planes is set to drive a strong multi-year aerospace cycle, and as the titanium company most tied to the industry, TIMET should see years of strong growth ahead.

As an added kicker, the company is controlled by billionaire Texas investor and Chairman Harold Simmons, who owns over 50% of the stock. Simmons is a serial buyer of TIMET's shares, and could always look to take the company private at some point.

Learn more about this financial newsletter at Geoffrey Seiler's BullMarket.com.

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