On July 31st, Metalico, Inc. (Public, AMEX:MEA) released revenue and earnings. In the last 15 days the stock has fallen a steep 16%. Not quite what investors were expecting from such a high performing call. Here are some highlights from the call:

• Sales increased by 342% to $295.1 million in 2008, compared to $66.8 million in the prior year’s second quarter.
• Operating income increased by 383% to $30.1 million, compared to operating income of $6.2 million for the quarter ended June 30, 2007.
• EBITDA increased by 328% to $34.2 million, compared to $8.0 million in the second quarter of 2007.

So what gives?

Unfortunately, The Steel Sector’s bottom fell out from under it the day of the earnings call. On July 30th, the Dow Jones US Steel Index started falling from $474 to the $384 level today – that’s an 18% drop in just under 2 weeks.

MEA just hit a little bit of bad timing this quarter – which means the stock could be ripe for value buyers to swoop in. Couple that with their addition to the Russel 2000 and Russel 3000 last month, and Metalico could make a comeback. One could also argue that they are a prime buyout target.

But what about Commodity prices?

There are two sides to every story, isn’t there? The downside for Metalico is that the commodities boom that looked unstoppable a few weeks ago may have finally burned itself out. Sudden plunges in the price of everything from crude to copper and cotton suggest commodities soared too high, too fast – and analysts expect even steeper declines ahead as the US economic slowdown spreads overseas and saps demand for energy, construction supplies and consumer goods.

Highlighting the spiral, the Jefferies-Reuters CRB index, a global commodities benchmark, plunged 10 per cent in July, its biggest monthly drop since 1980, when the US was in a recession.

“There was a commodities bubble and it has burst,” said James Cordier, president of Tampa, Florida-based trading firms Liberty Trading Group and OptionSellers.com.

In a sign of just how much the euphoria has faded, investors who thronged futures markets earlier this year seeking juicy, double-digit returns now can’t sell gold, silver and cocoa futures fast enough. Gold, for example, is selling for US$864 ($1226) an ounce – down from a record of US$1038.60 an ounce on March 17 – and lately has been falling $10 or more a day.

“Everybody is scrambling to get out of the ship before the guy next to them,” said Nathan Golz, a commodities researcher at Wachovia Securities in St Louis.

So what could bring commodities back up? Analysts say the biggest factor is the ailing US economy. If growth picks up, unemployment falls and consumers start spending again, demand for energy, building materials and other goods will increase, straining world supplies again.

So add Metalico to your watch list, and keep your other eye on the US Economy. Once it starts showing signs of life, it will be time to buy MEA at a good price.

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