After gaining 25.8% in 2020, copper has commenced 2021 on a bright note with three month copper futures touching a high of $3.61 per pound before closing at $3.55 per pound on Jan 4 — close to the eight-year high of $3.64 per pound hit in December 2020. Copper has been gaining on solid manufacturing data from top consumer China as the economy continues to recover from the pandemic. Also, pickup in industrial activity, and optimism surrounding vaccines and subsequent rollouts in certain economies have been working in favor of the metal lately.
Despite the overall gain last year, it had been a roller coaster ride for the red metal. The year 2020 started promisingly for copper with progress on the trade dispute between the U.S. and China, and improving economic prospects. However, the COVID-19 pandemic soon snapped the trend. Given its widespread use, copper has long been considered as a bellwether for the global economy. As the pandemic ravaged the global economy, copper prices took a beating and plummeted to a low of $1.98 per pound on Mar 19, 2020. Moreover, miners had to curtail or stop production in adherence to rules imposed by various governments amid the pandemic. Slowdown in industrial activity also severely impacted demand for copper.
However, the scenario improved for the red metal since second-quarter 2020. This revival can be attributed to supply curtailments related to the COVID-19 pandemic, pickup in the industrial activity and strong demand in China, triggered by its efforts to recover from the pandemic induced slowdown.
Per the Institute of Supply Management, the U.S Manufacturing Purchasing Managers’ Index crossed the 50 mark (which denotes expansion) in June and maintained a reading above 50 for six straight months. Notably, it was at 57.5 in November. The IHS Markit Eurozone Manufacturing PMI has trended above six months as well. In fact, the December reading of 55.2 is the strongest growth in factory activity since May 2018. The Official NBS Manufacturing PMI in China came in at 51.9 in December, marking the tenth consecutive month of expansion in factory activity and ramped-up investments.
Demand in China remains strong as it is gradually moving out of the crisis and working toward full normalization of economic activities. Further, the country’s stimulus program focused on new infrastructure and urbanization will require massive amounts of copper. Further, the potential supply disruption from top producer Chile, which has been grappling with the coronavirus situation and labor disputes, fueled the copper price rally.
Future Looks Promising for Copper
The International Monetary Fund’s (IMF) latest projection, the world economy is expected to grow 5.2% in 2021. The outlook for China is promising with a projected growth of 8.2% in the year.
The long-term outlook for copper remains positive as demand is anticipated to improve on investments in electric vehicles and renewable energy, and infrastructure. Meanwhile, grade decline, rising input costs, water constraints and scarcity of high-quality future development opportunities continue to constrain the industry’s supply. This demand-supply imbalance will prop up copper prices, which bodes well for miners. Miners are now committed to cost-reduction strategies and digital innovation to drive operating efficiencies, which will drive margins in the long haul.
Copper miners fall under the Zacks
Mining – Non Ferrous
industry, which has gained 64.6% in a year’s time compared with the S&P 500’s growth of 17.7%. The industry falls under the broader
Basic Materials
sector, which increased 20.6%.
Per the latest
Earnings Trends
, after remaining in the red for the past three quarters, the Basic Materials sector is expected to have returned to growth with a projected rise of 7.1% in earnings for fourth-quarter 2020. Despite this improvement, the sector is expected to witness a slump of 21% in earnings in 2020 due to decline in the first three quarters. However, the slump is not restricted to this sector alone, as 13 of the 16 Zacks sectors are expected to suffer declines — mostly casualties of the COVID-19 pandemic. The prospects for 2021 look promising for the sector with an impressive earnings growth projection of 40.5%.
5 Copper Stocks to Watch
We suggest you to keep an eye on these copper-mining stocks. We have handpicked five such stocks that have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a
VGM Score
of A or B. Our research shows that stocks with such a combination offer the best investment opportunities.
You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Over the past year, these stocks have outperformed the S&P 500’s and the sector’s rally of 17.7% and 20.5%, respectively. This is shown in the chart below. These stocks are anticipated to carry the momentum forward backed by their earnings growth projections.
BHP Group
BHP
: Headquartered in Melbourne, Australia, BHP Group engages in exploration, development, and production of oil and gas properties; and mining of copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal.
The company has six major projects under development in petroleum, copper, iron ore and potash, which will drive growth in the long run. Efforts to make operations more efficient through smarter technology adoption across the entire value chain will continue to aid in reducing costs, thereby boosting the company’s margins. Its focus on lowering debt will also contribute to growth.
The company has a long-term estimated earnings growth rate of 4%. The Zacks Consensus Estimate for the company’s fiscal 2021 earnings suggests year-over-year growth of 43%. The estimate has been revised upward by 22% over the past 90 days. The stock has a Zacks Rank #1 and a VGM Score of B. Its shares have appreciated 23.6% in a year’s time.
Rio Tinto plc
RIO
: Headquartered in London, the U.K., Rio Tinto engages in mining of aluminum, silver, molybdenum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium.
Rio Tinto’s world-class portfolio of high-quality assets and strong balance sheet positions it well to navigate through these turbulent times. The company’s disciplined capital allocation supports its ability to sustain production, increase investment in development projects (in high-return iron ore and copper), while delivering superior returns to shareholders. Notably, its copper projects at Resolution (Arizona) and Winu (Western Australia) offer significant growth prospects.
The Zacks Consensus Estimate for fiscal 2021 earnings indicates year-over-year improvement of 19%. The estimate has been revised upward by 25.4% over the past 90 days. The company has a Zacks Rank #1 and a VGM Score of B. Over the past year, the company’s shares have gained 32%.
Southern Copper Corporation
SCCO
: This company based in Phoenix, AZ engages in mining, exploring, smelting, and refining copper and other minerals.
The company has the largest copper reserves in the industry and operates high-quality, world-class assets. Its constant focus on increasing low-cost production is commendable. The company will gain from its efforts to grow in Peru given that the country is currently the second largest producer of copper globally and holds 13% of the world’s copper reserves. Notably, Southern Copper’s total investment program in Peru runs to $7.9 billion.
The Zacks Consensus Estimate for the company’s earnings in 2021 indicates year-over-year growth of 36%. The estimate has moved north by 11% in 90 days’ time. It has a long-term estimated earnings growth rate of 13.2%. The company’s shares have surged 61.6% in the past year. It currently has a Zacks Rank #3 and a VGM Score of B.
Freeport-McMoRan Inc.
FCX
: This Phoenix, AZ-based company is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; and smelting and refining of copper concentrates.
Freeport is conducting exploration activities near existing mines with focus on opportunities to expand reserves. The company will benefit from ongoing large-scale concentrator expansion project at Cerro Verde that will provide incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum. It recently completed the Lone Star copper leach project and is on track to produce around 200 million pounds of copper annually. The company’s effective cost management and efforts to reduce debt levels appear encouraging.
The Zacks Consensus Estimate for earnings for fiscal 2021 suggests year-over-year improvement of 265%. The estimate has been revised upward by 11% over the past 90 days. Shares of the company has soared 111.2% over the past year. It has a Zacks Rank #3 and a VGM Score of B.
Kaz Minerals plc
KZMYY
: This U.K.-based company and its subsidiaries engage in mining and processing copper and other metals (gold, silver, zinc) primarily in Kazakhstan and Kyrgyzstan.
The company is well-poised to grow on the back of its large scale, low cost open copper pit mines. Its constant focus on implementing modern technology to develop deposits has aided it in building a portfolio of highly profitable mines with low operating costs. The Aktogay expansion project, which is anticipated to commence production in late 2021, is expected to boost the company’s copper production by 80,000 tons from 2022-27 and 60,000 tons thereafter. The bankable feasibility study for the Baimskaya copper project is estimated to be completed in the first half of 2021. Baimskaya is one of the world’s largest undeveloped copper resources with the potential to be a large scale, low cost open pit copper mine.
The Zacks Consensus Estimate for the company’s earnings for 2021 has moved up 19.6% over the past 90 days. It suggests year-over-year growth of 18%. Its shares have appreciated 27.4% in a year’s time. The stock has a Zacks Rank #3 and a VGM Score of A.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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