Commodity stocks have witnessed a sharp correction in the recent past. China’s curb on steel production has been one of the catalysts for correction. Additionally, the Evergrande crisis caused some jitters in the commodity market. However, this correction seems like a good buying opportunity.
In terms of returns in the last 10 years, commodities have been an under-performer. This is indicated by the fact that the Bloomberg Commodity Index has delivered negative average annual returns of 2.66%.
It’s also worth pointing out that over a 20-year period, commodities delivered an annual average return of 1.61%. Commodities are therefore an undervalued asset class. A 120-year chart that compares commodity price with the Dow Jones Industrial Average, indicates that commodities have never been so undervalued.
However, a reversal in the long-term trend seems underway. The BBG Commodity Index has returned 42.2% in the last 12 months.
It’s worth noting that real interest rates are likely to remain negative for an extended period. Therefore, even with a likely Fed tapering, easy money will continue to have a positive impact on asset classes like commodities, energy and precious metals.
Another important point to note is that the recent correction in commodities has resulted in an overreaction in several commodity stocks. This presents a good near-term trading opportunity.
Here are four commodity stocks that look poised for a sharp reversal in the near-term. These stocks are also worth considering for the long-term portfolio.
Commodity Stocks to Buy: Vale (VALE)
Source: rafapress / Shutterstock.com
After touching highs of $23.20, VALE stock has witnessed a swift correction. In the last month, the stock is lower by 26%.
One reason for the sharp correction was a decline in iron ore prices as China moves to curb steel output. The Evergrande crisis also resulted in some jitters for the stock. However, even with these headwinds, the stock looks attractive at a forward price-to-earnings-ratio of less than 5. Additionally, VALE stock offers an annualized dividend of $2.27, which seems sustainable.
It’s worth noting that for Q2 2021, Vale reported an adjusted EBITDA of $11.2 billion. For the same period, the company’s free cash flow was $6.5 billion. Strong cash flows have significantly improved the company’s credit profile.
In terms of growth, Vale expects iron ore capacity at 343 million tons per annum (Mtpa) for 2021 and 400Mtpa for 2022. Furthermore, capacity is expected to increase to 450Mtpa over the next few years. Strong financial flexibility allows the company to invest in growth and sustain dividends.
Of course, demand from China is a key iron ore pricing and cash flow factor. However, investors can still benefit in the short term as a pullback rally seems likely from oversold levels.
Source: MICHAEL A JACKSON FILMS / Shutterstock.com
FCX stock is another attractive name among commodity stocks that’s worth buying after the recent correction. From May 2021 highs of $46.1, FCX stock currently trades around $32.80.
Wood Mackenzie recently predicted that the surging demand for renewables will benefit aluminium, copper and zinc. Freeport seems to be best positioned to benefit from secular industry tailwinds.
For the current year, Freeport estimates copper sales of 3.85 billion pounds. Sales are guided at 4.4 billion pounds for 2022 and 2023. With a positive long-term outlook for copper, Freeport is positioned to benefit from higher price and incremental production.
It’s worth noting that for Q2 2021, the company reported operating cash flow of $2.4 billion. Strong cash flows provide headroom for aggressive capital investment and dividends. For the current year, the company plans capital expenditure of $2.1 billion. Investments are guided to increase to $2.5 billion for 2022.
Additionally, Freeport reported net debt of $8.4 billion in Q2 2020. In the last quarter, net debt declined to $3.4 billion. As the credit profile improves, the stock is due for a re-rating.
The company has also indicated that additional cash returns are likely for shareholders after 2021 results. A potential increase in dividends also seems to be on the cards.
Commodity Stocks to Buy: Lithium Americas (LAC)
Source: Bjoern Wylezich/ShutterStock.com
Lithium, as a commodity, is likely to remain in demand with the electric vehicle industry at an inflection point. Last month, lithium carbonate prices hit an all-time high in China.
Lithium Americas has ambitious growth plans and looks attractive among commodity stocks worth holding for the next few years. LAC stock has moved higher by 40% in the last six-months. The stock still trades 23% below its 2021 highs.
The company has some attractive projects that are likely to deliver long-term value. Caucharí-Olaroz project has an annual production capacity of 40,000 tons per annum of lithium carbonate. The project has a life of 40 years with an annual average EBITDA potential of $308 million.
The Thacker Pass is another attractive project with an annual production capacity of 60,000 tons per annum of lithium carbonate. The project has a mine life of 46 years with an average annual EBITDA potential of $520 million.
From a financial perspective, the company has $500 million in cash. This is likely to fund the development of projects through 2022. Once production commences in the Caucharí-Olaroz (mid-2022), LAC stock is likely to see meaningful upside from current levels.
Rio Tinto (RIO)
Source: Rob Bayer / Shutterstock.com
RIO stock seems to be another name that’s a victim of market over-reaction. From 52-week highs of $93.30, the stock has declined to around $66. At a forward price-to-earnings-ratio of 4.3, the stock looks poised for a sharp comeback rally.
The recent decline in iron ore price has resulted in a sharp correction for the stock.
However, Jefferies analyst Chris LaFemina believes that Rio will “remain profitable even in a weak pricing environment.” LaFemina further notes that the company’s cost to mine and deliver iron ore to China is approximately $35 a ton. Therefore, even if iron ore price is around $100 per ton, Rio Tinto is positioned to deliver healthy free cash flows.
It’s worth noting that for the first half of 2021, Rio Tinto reported free cash flow of $10.2 billion. Further, the company has a negative reported net debt position of $3.1 billion. With a strong financial profile, dividends are likely to be sustained. Currently, RIO stock offers an annualized dividend of $7.52, which translates into a yield of 11.26%.
Overall, RIO stock looks attractive among commodity stocks for a sharp reversal rally in the coming weeks.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
More From InvestorPlace
- Stock Prodigy Who Found NIO at $2… Says Buy THIS Now
- Analyst Who Found Microsoft at $0.38 Names #1 Pick for the AI Boom
- America’s #1 EV Stock Still Flying Under the Radar
The post 4 Commodity Stocks to Scoop Up at Correction Prices appeared first on InvestorPlace.
5 Canadian metal stocks to buy
Highlights Over 43 per cent of the global mining firms are listed on the Toronto Stock Exchange and Toronto Stock Venture Exchange A stock mentioned…
- Over 43 per cent of the global mining firms are listed on the Toronto Stock Exchange and Toronto Stock Venture Exchange.
- A stock mentioned here surged by 104.8 per cent in the past year.
- One of the companies listed earned a gross profit of US$380.2 million in Q2 2021, an increase of US$238.1 million year-over-year.
The Canadian headline index surged by 201 points or 0.97 per cent before closing at C$ 20,819. 94 on Thursday, October 14. Base metals, information technology, and the industrials sectors traded in the green.
Over 43 per cent of the global mining firms are listed on the Toronto Stock Exchange and Toronto Stock Venture Exchange. Here’s a compilation of five TSX-listed metal stocks to consider.
Also read: Top 5 TSX value stocks to buy
- Teck Resources Ltd (TSX: TECK)
Its gross profit increased to C$ 233 million in Q2 from the steelmaking coal business segment.
The company posted an adjusted EBITDA of C$989 million in the second quarter of fiscal 2021, up by 104 per cent year-over-year. Its liquidity as of July 26, 2021, stands at C$6.1 billion.
The stock trading C$ 39.10 apiece holds a P/E ratio of 106.10 as of October 15. The stock’s one-year growth stands at 104.8 per cent and nearly 56.3 per cent YTD.
- First Quantum Minerals Ltd (TSX:FM)
The stock worth C$ 27.68 apiece grew by nearly 125 per cent in the past year and 21.13 per cent year-to-date. First Quantum Minerals produces gold, zinc, nickel, copper, and cobalt.
It has mining operations in Australia, Africa, and Latin America.
Its cash flows from operating activities of US$679 million in Q2 2021 were US$524 million higher than Q2 2020.
First Quantum stocks hold a P/E ratio of 46.70, as per TMX data.
The mining firm had US$1.79 billion in net unrestricted cash and cash equivalents at the end of the quarter.
- Labrador Iron Ore Royalty Corporation (TSX:LIF)
In the second quarter of fiscal 2021, the investment company posted a royalty revenue of C$ 78.8 million, compared to C$ 46.2 million a year ago.
Its equity earnings from Iron Ore Company of Canada were C$66.2 million in Q2 2021, compared to C$28.7 million YoY.
The steel firm’s stocks surged by nearly 40 per cent in the past year, with a P/E ratio of 7.10.
The company pays a quarterly dividend of C$ 2.10 per stock, with a three-year dividend growth of 39.51.
- Lundin Mining Corporation (TSX: LUN)
The mining firm’s stocks traded C$10.28 at close on October 14. The diversified base metals producer has operations in Chile, the US, Sweden, Portugal, and Brazil.
Lundin Mining’s gross profit for Q2 2021 was US$380.2 million, an increase of US$238.1 million year-over-year.
The Canadian mining leader had cash and a net cash balance of nearly US$250 million and US$ 190 million as of July 28, respectively. The firm has a return on equity (RoE) of 15.07 per cent and its current dividend yield of 3.5 per cent.
The stocks surged by over 34 per cent in the past year and over 12.8 per cent quarter-to-date.
- Turquoise Hill Resources Ltd (TSX:TRQ)
The firm through its principal asset, the Oyu Tolgoi copper-gold mine, is engaged in the exploration, development, and mining operations.
The international mining company posted US$ 317.8 million in revenue from the operating segment for the three months period ended June 30. The stocks delivered an ROE of 4.63 per cent and a return on assets of 3.25 per cent on October 15.
The scrips have added nearly 80.37 per cent of growth in the past year. It closed at C$19.12 on October 14.
Also read: The Best Cryptocurrencies of 2021
With inflation looming, gold and base metals prices could hold steady or grow. However likely this is, it’s not a given.gold inflation metals mining tsx toronto stock exchange copper zinc iron tsx-fm first-quantum-minerals-ltd tsx-lif labrador-iron-ore-royalty-corporation tsx-lun lundin-mining-corporation lundin mining corporation tsx-trq turquoise-hill-resources-ltd
Japan’s New Prime Minister Admits Abenomics Was A Failure
Japan’s New Prime Minister Admits Abenomics Was A Failure
Sometimes it takes years, if not decades to be proven right in a world that has…
Sometimes it takes years, if not decades to be proven right in a world that has been turned upside down.
Take Abenomics, the "radical" Japanese vision that was supposed to overhaul Japan's economy and society, push wages higher, boost Japanese exports, spark en economic renaissance and drag Japan out of its perpetual deflationary debt trap (but it's not targeting a weaker yen, it was never targeting a weaker yen) yet was nothing more than sanctioned money printing, and which we bashed from the very beginning, to wit:
For The First Time Ever, Japan Enters A Quintuple-Dip Recession (Courtesy Of Abenomics) https://t.co/KllDJmX4e1— zerohedge (@zerohedge) November 15, 2015
The Abenomics Devastation: Japanese Real Wages Decline For Record 16 Consecutive Months http://t.co/vEkvamwYD4— zerohedge (@zerohedge) December 2, 2014
Abenomics Humiliated Again As Japan Posts 15th Consecutive (And Record) Trade Deficit http://t.co/3fR7E7C9BA— zerohedge (@zerohedge) October 21, 2013
Abenomics Is Crushing The Japanese Worker http://t.co/jqkitFGz3P— zerohedge (@zerohedge) September 3, 2013
... and so much more, it was just today, almost a decade after Abenomics first arrived on the scene, that we get the official verdict, that it was - as we said all along - a failure.
Speaking to the FT in his first interview with international media since taking over Japan’s leadership this month, Fumio Kishida, Japan's new prime minister pledged to move the country away from neoliberalism as he lambasted his own party’s failure to deliver broad-based growth under the Abenomics programme that defined the economy for almost a decade.
Kishida told the FT that while regulatory reform remained necessary, he would approach it with a focus on narrowing the gap between the rich and poor. The implication - Abenomics, like money printing everywhere else, was responsible for creating a staggering chasm between the rich and poor.
“Abenomics clearly delivered results in terms of gross domestic product, corporate earnings and employment. But it failed to reach the point of creating a ‘virtuous cycle’,” Kishida said, in his bluntest attack on a program embraced by his two predecessors that propelled the Tokyo stock market through a doubling in value.
“I want to achieve a virtuous economic cycle by raising the incomes of not just a certain segment, but a broader range of people to trigger consumption. I believe that’s the key to how the new form of capitalism is going to be different from the past,” he added, Kishida said sounding almost socialist.
In Japan, “neoliberalism” most often refers to the reforms of the 1990s and 2000s, including deregulation, privatization and labor market reform, rather than tight fiscal policy and cuts to public spending. By openly criticising his predecessor, Shinzo Abe, who failed not once but twice as Japan’s longest-serving prime minister and who resigned in September 2020, Kishida took a calculated risk according to the FT, as he prepares for a general election on October 31.
One reason for his assault on Abenomics is that recent polls have showed him with an average approval rating of just over 50 per cent, considerably lower than most of his predecessors when they came into office and a signal, said political analysts, that his honeymoon period for enacting meaningful reform may be short.
The former foreign minister was chosen to replace Yoshihide Suga as leader of the ruling Liberal Democratic party on the understanding that he would offer “status quo” stability and continuity. Despite attempts to remove that image, he has already backtracked on one of his major policy initiatives to raise capital gains tax after share prices fell sharply on concerns that such a move would kill a recent revival of interest by individual domestic investors.
Kishida stressed his new economic approach — involving tax incentives for companies to raise wages and pay increases for nurses and care workers — would attempt to reverse the failures of the “trickle-down” theories and market-led reforms that have guided Japanese policymaking from the mid-2000s.
“Everyone just considers regulatory reform in terms of market fundamentalism, competition and survival of the fittest. That’s the problem with our past thinking on regulatory reform,” Kishida said, calling on companies and the public to share a more holistic vision of the economy.
He also envisions deeper collaboration between the state and the private sector to secure strategic assets and technologies such as chips and rare earths that will be pivotal for economic security.
“It is important to ensure a self-sufficient economy when we are considering future growth,” Kishida said. “We need to make sure that Japan has technologies that are critical to complete global supply chains so we can achieve indispensability.”
Kishida publicly signaled for the first time that he may also take a new approach to the corporate governance reform that has been a pillar of the Abenomics programme alongside aggressive monetary easing and fiscal stimulus.While Japan introduced its first corporate governance code in 2015, Kishida said a separate code may be needed to address the needs of small and medium-sized companies. “It’s not realistic to apply the same rules. Corporate governance is important for small- and medium-sized enterprises but they can’t do it in the same way as big companies,” he explained.
Predictably, corporate executives who got egregiously rich thanks to
money printing Abenomics have privately expressed scepticism about the new prime minister’s economic agenda, pointing to how Japan has failed to emerge from deflation and open up rigidly regulated markets even after nearly nine years of strong public support for Abenomics. Their solution: do more of what has failed, after all it makes them richer.
Kishida also faces a more complex geopolitical environment than his predecessors, with China’s increasing assertiveness and a global rush to secure national supply chains following the turmoil caused by the coronavirus pandemic.When asked about the new trilateral security partnership the US has launched with the UK and Australia to strengthen their ability to counter China, Kishida said Japan had no specific plans to join the framework.
But he added: “Considering the stability of the region, it is extremely important for European and US countries to be interested and involved in Asia’s security environment.”
Kishida heads an LDP faction with a historically dovish stance on China, but as prime minister, he has called for a strengthening of the country’s missile and other defense capabilities.
For the upcoming election, the ruling party for the first time included a manifesto pledge to double defence spending, in a break from the long-held tradition to keep its military budget within 1 per cent of GDP.
“On the economic front, it’s important to stabilize relations with China,” Kishida said, before noting recent “questionable behavior” from Beijing. “So on the political level, Japan must be able to firmly assert itself against China.”
Wall Street ends higher as financials, consumer stocks lead gains
Benchmark US indices closed higher for the second consecutive day on Friday October 15 buoyed by robust quarterly results of financial majors Goldman…
Benchmark US indices closed higher for the second consecutive day on Friday, October 15, buoyed by robust quarterly results of financial majors Goldman Sachs and Charles Schwab and others.
The S&P 500 rose 0.75% to 4471.37. The Dow Jones rose 1.09% to 35294.76. The NASDAQ Composite rose 0.50% to 14897.34, and the small-cap Russell 2000 fell 0.37% to 2265.65.
The S&P 500 advanced 1.9% this week and is on course for its best monthly performance since July.
Markets were upbeat after solid quarterly results of companies. In addition, Friday's positive retail sales data helped reassure investors about the growth outlook. Retail sales rose in September despite concerns over the Delta variant and the culmination of the government unemployment benefits.
The Commerce Department said on Friday retail sales rose by 0.7% in September on a seasonally adjusted basis from August, reflecting strong demand and higher consumer prices.
Financials, consumer cyclicals, industrials, and energy stocks were the top gainers on S&P 500. Utility stocks were the bottom movers. Ten of the 11 index segments were in the positive territory.
Stocks of financial major Charles Schwab Corporation (SCHW) jumped over 3% after reporting a 119% YoY increase in profits for the third quarter. Its net income rose to US$1.5 billion from US$0.698 million a year ago. Also, its net revenue increased by 87% YoY to US$4.57 billion.
Goldman Sachs Group, Inc. (GS) stock rose over 2% in intraday trading after reporting its Q3 profit of US$5.38 billion, an increase of 60% YoY. Its revenue was up 26% YoY to US$13.61 billion.
On the previous day, several major financial companies, including Morgan Stanley, Bank of America, and Citigroup, reported significant profits in the third quarter. According to Wall Street analysts, some 80% of the S&P 500 companies have beat their Q3 estimates so far.
Logistics company J.B. Hunt Transport Services' stock rose 9% after reporting profit growth in the third quarter. Metal producer Alcoa Corporation (AA) stock climbed 15% on Friday, a day after posting higher third-quarter sales, boosted by higher aluminum prices.
Moderna Inc (MRNA) stock slipped nearly 3% in intraday trading after the Wall Street Journal reported a delay in the FDA decision on approving its Covid-19 vaccine for teenagers.
Overall, the US market is seeing substantial gains in October, boosted by strong quarterly results. However, supply chain and inflation worry continue to dog investors. They fear that supply snarls and a sharp rise in energy prices might further worsen inflation.
Wednesday's CPI figures showed US inflation rose 0.4% in September after climbing 0.3% in August. Food and rent costs contributed nearly half of the September inflation rise. Meanwhile, the fed said it is considering withdrawing its crisis-era monetary policy later this year to curb price rise.
On Friday, the 10-year Treasury bond yields rose for the second consecutive day. It rose to 1.578% from 1.519% on Thursday. Treasury yields rise when the bond prices fall.
Futures & Commodities
Gold futures were down 1.65% to US$1,768.20 per ounce. Silver declined 0.53% to US$23.352 per ounce, while copper rose 1.91% to US$4.7200.
Brent oil futures increased by 1.00% to US$84.84 per barrel and WTI crude was up 1.50% to US$82.53.
The 30-year Treasury bond yields rose 1.02% to 2.046, while the 10-year bond yields rose 3.61% to 1.574.
US Dollar Futures Index fell 0.00% to US$93.960.nasdaq aluminum
Victory Resources Commits to Lithium Exploration While China Continues With Its Lithium Buying Spree
Lithium Stocks Rise as China Eyes More Argentina Acquisitions, Here are 4 Companies in Their Crosshairs
Mining Companies Hitting 52-Week Highs
Shares Up 4.50% Today – Avino Silver Produces 285,464 AgEq oz From Avino Mine in Q3
Global Metal Prices Surge Led By Zinc And Aluminum
Mining Small Cap Stocks Shot Up Yesterday, Here’s 4 to Watch
Falcon Gold Stakes Claims Near Lithium Discovery, Shares Rise 10% Today
Adyton Reports 88% Increase in Total Gold Resources – Shares Up Today 30.77%
Uranium Miners Confident They Are ‘On the Cusp of a New Renaissance’
4 Hot OTC Penny Stocks To Watch For October 2021
Precious Metals13 hours ago
Shares Up 4.50% Today – Avino Silver Produces 285,464 AgEq oz From Avino Mine in Q3
Precious Metals13 hours ago
Falcon Gold Stakes Claims Near Lithium Discovery, Shares Rise 10% Today
Precious Metals14 hours ago
Mineros SA is 1 of 3 Canadian IPOs to Get Excited About!
Today’s News19 hours ago
Silver Sands Resources Commences Phase III Drilling at the Virginia Silver Project
Economics21 hours ago
ChargePoint Stock Has a Really Compelling Long Term Case
Precious Metals15 hours ago
Canadian Bank ETF’s You Need to Look at in October 2021
Precious Metals19 hours ago
West Red Lake Gold Hits 77.87 g/t Gold Over 1.9 Metres At Rowan Mine
Economics19 hours ago
Weekly Investment Update – Stagflation Jitters