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Iron-Ore Price Collapse Hits Mining Stocks

“China’s moves to rein in its mammoth steel industry have roiled [iron ore] markets this year,” say Krystal Chia and Yuliya Fedorinova on Bloomberg….

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This article was originally published by Money Week

“China’s moves to rein in its mammoth steel industry have roiled [iron ore] markets this year,” say Krystal Chia and Yuliya Fedorinova on Bloomberg. Global iron-ore prices hit a record high in May; contracts for spot (immediate) delivery to north China soared to over $235 a tonne. Since then, they have slumped by around 60%, falling below $100 a tonne for the first time in a year. 

The turmoil in the real-estate sector has played a minor role in the latest slump. However, the underlying cause of both boom and bust is the Chinese government’s attempts to curb steel production in order to reduce power consumption, cut carbon emissions and – most pressingly – improve air quality ahead of the Winter Olympics next year. Hence the industry saw iron-ore prices “spiking in the first half as [steel] mills rushed to front-load volumes ahead of additional production restrictions being rolled out”, followed by the recent rout as demand dried up.

An overreaction both ways

Just the surge in May was “an overblown rally”, the plunge was “a disorderly retreat”, says Clyde Russell on Reuters. Neither was “fully justified by the fundamentals of supply and demand”. Changes in physical shipments of iron ore are “nowhere near as dramatic as the moves in prices”. China’s iron-ore imports in the first eight months of the year were down just 1.7% from the same period in 2020; imports in August were the highest since April, with no sign that inventories at ports are building. 

The fact that price moves have been so excessive may be due to “increased speculator interest in a market that traditionally was the preserve of large players, miners and steel mills”. In any case, with prices around $100/tonne, conditions look more balanced. “History suggests that iron ore is likely to spend more time below $100 a tonne than above it.”

Blue-chip miners look cheap 

The slump has The iron-ore price hit a record high of over $235 a tonne in May. But it has since fallen to below $100 a tonne, sparking a sell-off in mining stocks., says Alex Gluyas on the Australian Financial Review. “Analysts predict the worst may not yet be over… so investors are at a crossroads in terms of trying to catch a falling knife by picking a bottom of the iron-ore price, or rotating out of heavily exposed iron-ore stocks.”

Yet diversified miners such as Rio, BHP, Anglo American, Glencore and Vale “are in the best shape ever”, says Andrew Bary in Barron’s. Their balance sheets are strong. Limited capital expenditure means good cashflow. “Even with the slump in iron ore, the producers remain highly profitable… other commodities are in better shape.” Copper is up 20% this year, aluminium is up 40% and thermal coal prices have doubled. Price/earnings ratios are in single digits and dividends are attractive. “For investors willing to accept some risk, the Big Five miners offer a rich opportunity.” 

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Hawkish Powell Hits Stocks; Bitcoin Flat As Breakevens, Bond Yields & Bullion Bounce

Hawkish Powell Hits Stocks; Bitcoin Flat As Breakevens, Bond Yields & Bullion Bounce

A very mixed week across the asset-classes.

Hawkish…

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Hawkish Powell Hits Stocks; Bitcoin Flat As Breakevens, Bond Yields & Bullion Bounce

A very mixed week across the asset-classes.

Hawkish Powell: rate-hike expectations surged higher but stocks gained, crude rallied but copper tumbled. Growth and Value stocks basically ended the week up around the same amount (while Cyclicals modestly outperformed Defensives). Perhaps most notably, rates vol and stock vol expectations are dramatically decoupled from one another.

Inflation: Breakevens soared to record highs… globally, bullion bounced but bitcoin ended the week unchanged and bonds only modestly higher in yield.

Source: Bloomberg

We do not that the long-end of the curve notably outperformed today (flattening the curve significantly) after Powell’s comments, in a clear signal from the market that it’s expecting a Policy error

Source: Bloomberg

Arguably, as Goldman details below, the market could be morphing back from a ‘stagflation’ narrative to a ‘reflation’ narrative

Heading into the week, the ‘stagflation’ narrative was continuing despite the fact that the S&P 500 had already bounced off of its late-September bottom and was heading back towards an all-time high.  And as we exit the week, the inflation debate seems to be evolving into a ‘the Fed will hike earlier’ narrative, with yields on 2-year Notes spiking to 0.50% — a level last seen in the first days of the pandemic way back on March 18, 2020.  Praveen Korapaty writes in last Friday’s note, “Front-end pressures mount,” that markets appear to have returned to a paradigm of simultaneously bringing forward and/or accelerating hike pricing and taking down terminal rate assumptions. Bond investors appear to be increasingly thinking that the rise in inflation that we have been observing will translate into an earlier Fed funds rate hike.

And yields on 10-year Treasuries also briefly touched 1.70% this week, suggesting that bond investors are actually also feeling fine about longer-term growth.  And this better feeling is also being reflected in stock prices with the S&P 500 breaking up above 4500 and hitting a new all-time high this week.  So, the ‘stagflation’ narrative seems to be morphing back into a ‘reflation’ narrative — something similar to what we were experiencing when the economy first ‘reopened’ last spring.

Digging into each asset class, stocks ended the week higher overall (despite today’s Powell-driven dip that sent Nasdaq down around 1% today)…

The S&P and Dow closed at record weekly closing highs…

In Canada, the S&P/TSX Composite is up 13 straight days to a new record high – the longest winning streak since 1985…

Source: Bloomberg

Rather interestingly, this week saw “get out and party” recovery stocks underperform the “stay at home and sulk” stocks…

Source: Bloomberg

Cyclicals modestly outperformed Defensives on the week…

Source: Bloomberg

Growth barely outperformed Value on the week…

Source: Bloomberg

TSLA topped FB in terms of market cap again today (to become the 5th biggest company in the S&P) as Musk’s carmaker surged to new record highs above $900…

Source: Bloomberg

But the week’s biggest gainer was Trump’s “TRUTH” SPAC which ended up over 800% (though at one point it was up over 1600%)…

Source: Bloomberg

VIX traded down to a 14 handle this morning – the lowest since before the pandemic lockdowns began…

Treasury yields ended the week higher, but the long-end notably outperformed…

Source: Bloomberg

The yield curve ended the week notably flatter (after a wild ride midweek back to last week’s highs)…

Source: Bloomberg

Policy Error? The flattening started with the June taper chatter…

Source: Bloomberg

Inflation Breakevens soared to record highs today (US 5Y topped 3.0%) across the globe today…

Source: Bloomberg

The dollar ended the week lower, chopping around at one-month-lows…

Source: Bloomberg

Cryptos had a wild ride for the week with Bitcoin reaching new record highs after BITO’s launch before fading back to unchanged on the week today (Ethereum modestly outperformed on the week)…

Source: Bloomberg

Bitcoin ended the week just above $60k, well off the $67k record high…

Source: Bloomberg

The newly launched Bitcoin (futures) ETF (BITO) ended below its opening level…

Bitcoin Futures were well bid as BITO launched but the premium over spot has faded since…

Source: Bloomberg

Commodities were very mixed with copper clubbed and silver soaring (gold and crude also rallied)…

Source: Bloomberg

Rather interestingly, the huge divergence between copper and silver occurred at a key resistance level (around 20 ounces of silver to buy copper)

Source: Bloomberg

Finally, we note Mizuho’s warning of the impact of today’s more hawkish speech from Fed chair Powell. Our view that the divergence of equity implied vol (at pre-pandemic lows) from rates implied vol (rising to the highs of the year in most markets) is unsustainable, is showing tentative signs of turning.

Source: Bloomberg

The sharp move lower in Nasdaq futures and widening of CDS indices is a warning shot, we feel, of how risk assets would break down if the Fed was to try to stamp out inflation at such an early point in the cycle as mid 2022.

Commodities relative to stocks are starting to flash some red alerts…

And if one needed an excuse to buy some protection against that whiplash reality check for stocks, VIX is at a critically cheap level relative to VXV…

Source: Bloomberg

That has not tended to end well for stocks.

Tyler Durden
Fri, 10/22/2021 – 16:01



Author: Tyler Durden

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These 7 High-Upside Stocks Belong in Your Portfolio

Navigating the stock market is a difficult task for the inexperienced. The first step in making a successful trade is understanding how prices work and…

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Navigating the stock market is a difficult task for the inexperienced. The first step in making a successful trade is understanding how prices work and what they represent. However, one of the best approaches you can take is seeking out high-upside stocks.

It is a value investing approach. A good value investor looks for companies with low prices relative to their intrinsic worth and is willing and able to buy shares when they’re cheap. There is no one-size-fits-all strategy, but intelligent risk management demands caution.

I’m taking a deep dive into high-upside stocks that are looking to break out of this list. But at the same time, all of these companies have solid operating models; these aren’t fly-by-night operations. But a word of caution before moving forward: even the best consensus estimates are just estimates in the end. They can go wrong. It’s very important to make sure the stock that you are interested in actually matches your risk-return profile.

With that in mind, here are seven high-upside stocks to buy:

  • Occidental Petroleum Corp. (NYSE:OXY)
  • Penn National Gaming (NASDAQ:PENN)
  • Fox Corp. (NASDAQ:FOX)
  • ChargePoint Holdings (NYSE:CHPT)
  • Barrick Gold (NYSE:GOLD)
  • Teladoc Health (NYSE:TDOC)
  • Shopify (NYSE:SHOP)

High-Upside Stocks: Occidental Petroleum Corp. (OXY)

Source: bht2000 / Shutterstock.com

TipRanks 12-Month Consensus Price Target: $39.21 (17% upside potential)

Occidental Petroleum is a privately owned company that produces and sells crude oil. The stock of this American multinational corporation has been steadily rising over recent decades due largely to increased sales from its operations in Latin America, especially Colombia.

However, the Covid-19 pandemic was devastating for Occidental Petroleum and other companies in the space. The energy company was already dealing with the $57 billion purchase of Anadarko Petroleum. At the purchase, many analysts questioned the wisdom of accepting so much additional debt to finance the purchase. The pandemic added to the company’s miseries. In response, Occidental is disposing of non-core assets to decrease leverage.

But now, things are getting back to normal, and energy prices are on the move. Therefore, OXY stock has all the potential for a comeback.

Penn National Gaming (PENN)

Penn (PENN) National Gaming logo on the website homepage.Source: Casimiro PT / Shutterstock.com

TipRanks 12-Month Consensus Price Target: $95.33 (26% upside potential)

Penn National Gaming operates casinos and racetracks with 44 facilities spread across America and Canada. It also owns a 36% stake in Barstool Sports company.

Over the last decade, the regional land-based casino operator has done very well, a rare outlier the last year. Penn National Gaming’s revenue for 2020 was $3.579 billion. In 2019, annual revenue came in at $5.301 billion, representing a decrease of 32%.

However, things are doing very well in the year thus far. But by investing in Barstool Sports, the company has carved out a niche in mobile sportsbook betting.

High-Upside Stocks: Fox Corp. (FOX)

The Fox Corporation (FOXA) headquarters in New York City.Source: Leonard Zhukovsky / Shutterstock.com

TipRanks 12-Month Consensus Price Target: $44.50 (13% upside potential)

Fox Corporation has become one of America’s most successful media companies. They produce and license news programs for distribution through cable television systems as well direct broadcast satellite operators.

With advertiser spending rebounding, things are looking pretty good for FOX. Most recently, the company reported record earnings for the fourth quarter and fiscal 2021 financial results. Revenue grew by 20%.

A rise in advertising revenue was seen across all three segments: television (51%), cable network (17%) and other revenues (30%). With the pandemic slowly receding into the background, things will only get better from this period. According to Executive Chairman and Chief Executive Officer Lachlan Murdoch, “We look forward to the year ahead, anticipating the return of normalized sports and entertainment calendars and the start of the midterm election cycle.”

ChargePoint Holdings (CHPT)

CHPT a chargepoint charging stationSource: Michael Vi / Shutterstock.com

TipRanks 12-Month Consensus Price Target: $32.89 (54% upside potential)

ChargePoint operates the largest network of separately owned EV charging stations, active in 14 countries. As the world pivots towards clean energy, companies like ChargePoint stand to benefit immensely. We have already seen President Joe Biden release a comprehensive $2 trillion infrastructure and economic recovery package that has a significant EV component.

To accommodate the expected growth of EVs by 2030, AlixPartners estimates $300 billion is needed to build out global infrastructure, including $50 billion in America, a feat that would take quite some time and effort. But as the Chinese proverb goes, “A journey of a thousand miles begins with a single step.” Under Biden’s infrastructure plan, 500,000 charging devices would be installed in a national EV charging network in America by 2030.

Against this backdrop, ChargePoint, an industry leader, becomes an enticing prospect for any portfolio. Most recently, analysts expected the company to narrow losses to 12 cents apiece. But ChargePoint reported a second-quarter loss of 13 cents. However, sales finished at $56 million — an increase from their prior year’s same quarter by 61% and beating expectations.

Looking ahead, ChargePoint expects revenue between $60 million and $65 million for its third quarter. In addition, the company hiked full-year revenue guidance between $225 million and $235 million, from $195 million to $205 million, for the fiscal year ending January 31, 2022.

High-Upside Stocks: Barrick Gold (GOLD)

Closeup of a large gold nugget. stocks under $10Source: Shutterstock

TipRanks 12-Month Consensus Price Target: $25.79 (31% upside potential)

Barrick Gold is a Canadian multinational mining company that engages in the production and sale of gold and copper and mining-related activities such as exploration for new deposits or mine development on old ones to increase its reserves quantity.

Global miners have been a major hot topic in the investment world this year. Shares of global mining companies skyrocketed to record highs last year. It turns out these stocks were not worth their value, though, as prices fell with international turmoil.

Barrick’s latest EPS figure of 29 cents beat analysts’ expectations by a narrow margin. The company reported revenue of $2.89 billion, which missed estimates of $2.92 billion. Even though gold production fell 9.4% in the second quarter, realized prices rose 5.5%. This is because there were more buyers than ever before, thanks to people who wanted one safe-haven asset during this time of uncertainty caused by pandemic fears and a weakened dollar.

Barrick restated a capital investment plan of $1.8 billion to $2.1 billion on the bright side. The production plan is reaffirmed at 4.4 million ounces to 4.7 million gold ounces and 410 million pounds to 460 million pounds of copper.

Teladoc Health (TDOC)

The Teladoc (TDOC) logo through a magnifying glass.Source: Postmodern Studio / Shutterstock.com

TipRanks 12-Month Consensus Price Target: $200.95 (45% upside potential)

Teladoc Health is multinational telemedicine and virtual healthcare company. They have primary services including, but not limited to, medical opinions via teleseminars or email correspondence, AI-powered analysis on prescription drugs and patient records from various providers such as hospitals or insurance companies.

Last year was a satisfying one for the company. Due to strict lockdowns, patients turned towards telemedicine for their needs. It led to a bonanza for companies like Teladoc, which saw full-year revenue jump 98% year-over-year to $1.1 billion. However, now that things are getting back to normal, there is a fear that a slowdown may occur. In the second fiscal quarter, Teladoc finished with a net loss of $133.8 million, or 86 cents a share, which more than doubled the loss from the year-ago period.

Looking ahead, the company anticipates third quarter revenue between $510 million and 520 million, with a net loss range of 78 cents to 68 cents a pop. For the full year, they guided for $2 billion to $2.025 billion in sales alongside an expected per-share loss range from $3.35 to $3.60.

High-Upside Stocks: Shopify (SHOP)

shopify logo sign on building facadeSource: Beyond The Scene / Shutterstock.com

TipRanks 12-Month Consensus Price Target: $1,709.95 (20% upside potential)

Shopify is the go-to platform for e-commerce stores. It offers secure, reliable and scalable cloud services that enable online retailers to sell their products across different channels with a single click of a button from anywhere in the world.

In announcing second-quarter 2021 financial results, the tech giant, for the first time, achieved a $1 billion revenue quarter on record gross merchandise value (GMV). Total revenue ended up at $1.1 billion, an increase of 57% from the year-ago period. GMV was $42.2 billion, a jump of $12.1 billion or 40% year-on-year. Adjusted net income came in at $284.6 million, or $2.24 per diluted share. These figures compare very favorably with adjusted net income of $129.4 million, or $1.05 per diluted share, last year.

Shopify’s digital commerce trends were very strong in the first half of 2021. It combined the secular growth in e-commerce, stimulus distributed this March and April, and lower than expected operating expenses. As a result, full-year 2021 adjusted operating income is expected to outpace last year’s results.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.

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Author: Faizan Farooque

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Freeport McRoran (NYSE:FCX) Misses Copper Production Estimates, Copper Crunch Continues

Freeport McMoran Inc. (NYSE:FCX) produced less copper than expected from its mines in the Americas in the last quarter, heightening concerns about a tight…

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Close-up of an open-pit copper mine in Peru.

Freeport McMoran Inc. (NYSE:FCX) produced less copper than expected from its mines in the Americas in the last quarter, heightening concerns about a tight global market where prices have soared to record levels. Freeport produced 987 million pounds of the metal in the third quarter, the company said in a statement on Thursday, with production falling below Bloomberg analysts’ average estimate of 1 billion pounds. The slowdown was driven by lower-than-expected output at its mines in South America.

The stock has more than doubled in the last year, becoming one of the best performers among copper suppliers tracked by Bloomberg Intelligence. The production shortage at Freeport comes after the company posted a quarterly profit that beat analyst estimates as higher copper prices helped lift sales and operating profit to levels last seen in the same quarter a year ago. Adjusted earnings of 89 cents per share topped the average estimate of 82 cents. Freeport estimates that annual copper sales are 3.8 billion pounds this year, following sales of 1.03 billion pounds in July and September. Net cash costs for Freeport were $1.24 per pound in the third quarter, well above the average analyst estimate of $1.30 per pound. Rising costs are seen as one of the few headwinds to earnings growth for the copper mining giant.

Freeport’s results will be particularly interesting for traders navigating the wild swings in copper prices, with available stocks on the London Metal Exchange at their lowest level since 1974. The market had been banking on Freeport to ramp up underground production. The company said underground progress at its flagship Grasberg mine was progressing on schedule. While companies are moving quickly to bring more copper to market, growth in demand is seen to be outstripping supply over the next decade, with new projects needed to help balance the dynamic. 

Global shipping bottlenecks and energy bottlenecks in China and Europe have clouded the demand outlook for the coming year. But the immediate outlook for copper, supported by lower inventories and a shift to low-carbon energy sources, is rosier in the longer term.  Efforts to save electricity in China and to limit emissions have been a double-edged sword for mining companies with higher smelting fees wiping out some of the windfall. 

The China Conundrum

Coal provides much of the country’s electricity, but a combination of factors has recently led to electricity shortages. China’s coal production in 2021 will be unable to keep pace with rising electricity demand due to tighter safety regulations and an additional focus on environmental issues in Beijing, tight global coal markets, rising prices, and other factors, including weather delays. China is working out of a coal-fired power crisis that has sent shockwaves through its economy, but efforts to move to a low-carbon future are bringing additional risks to the country’s supply-demand balance. The shift has been too great, too fast, and the country is having trouble balancing its power needs with generating sufficient electricity using cleaner fuels. 

Copper is one of the desperately needed metals for that clean energy transition. It is used for energy storage which is critical to use with renewables that are not able to generate electricity consistently. China is and will be one of the biggest copper consumers in the coming years, and will contribute to how fast demand will be driven.

Solar power can only be generated for a certain period, and when the night sets in, countries will need to draw power from the excess generated and stored in batteries. The lithium-ion batteries used to store large amounts of power require copper to be manufactured, and copper is the primary material for electricity transportation as well. To get the electricity from the generation site to the storage site, copper wiring will be used. More will be necessary to deliver that electricity to homes and offices and the factories that need to keep running almost constantly. 

As China tries to shift to renewable energy, a severe drought has hit hydropower, especially in central Yunnan province. According to the National Development and Reform Commission, the water production in July and August fell by more than 4% year-on-year. Freeport’s production miss is significant because the producer accounts for so much of the global production, but the copper market remains strong. If anything, the lower production may only contribute to the supply crunch and rising copper prices.

 

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.

The post Freeport McRoran (NYSE:FCX) Misses Copper Production Estimates, Copper Crunch Continues appeared first on MiningFeeds.


Author: Matthew Evanoff

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