The stock markets had a difficult start to the year due to investors’ concerns over surging inflation, Russia’s invasion of Ukraine, and the possibility of aggressive interest rate hikes by the Federal Reserve. However, metal stocks were an outlier, as they displayed significant strength amid the market correction.
Metal stocks made a solid comeback last year as demand soared amid industrial and economic activity resumption. Copper prices have been hitting all-time highs over concerns of supply disruptions and historic low stockpiles. Copper’s use in electric vehicles and clean energy solutions is expected to keep the metal in high demand, as the need to transition to clean energy is becoming prominent.
Given this backdrop, I’m going to discuss three prominent copper stocks, Freeport-McMoRan Inc. (FCX), Southern Copper Corporation (SCCO), and Hudbay Minerals Inc. (HBM), which are well-positioned to capitalize on the rising copper prices.
Strong Clean Energy Demand: A Boon for Copper Industry
The burning of fossil fuels over time has led to the rise in temperatures across the globe. Global warming is a severe threat to the planet and future generations. Economies and leaders worldwide have been working together to keep the temperatures in check by pushing the adoption of sustainable practices.
Most nations have been pushing the adoption of clean energy to reduce the dependence on fossil fuels. The shift from energy produced through coal, natural gas, and oil to cleaner energy sources such as solar and wind will continue to keep copper in high demand.
Metals and minerals are expected to play a significant role in the world’s gradual shift to clean energy. Copper is among the widely used metals in energy generation, transmission infrastructure, and storage. The usage of copper in electric vehicles and clean energy sources such as wind and solar is expected to keep the demand for copper high. There are approximately five tons of copper per megawatt in renewable energy systems, while offshore wind turbines require around 28,000 kgs. of copper. Moreover, renewable energy systems use up to twelve times more copper than traditional energy systems.
As the usage of copper rises, demand may outstrip supply, fueling higher prices for the metal. This should lead to higher revenues and earnings for copper miners. In its commodity report, the World Bank estimated copper spot price to grow to $8,250 by 2035. Also, the Department of Industry, Science, Energy, and Resources of Australia expects the price of copper to grow to $8,876 by 2026.
Investors’ growing interest in copper is evident from the United States Copper Index Fund (CPER) 14.8% return over the past year.
Performance of Major Industry Participants
Two major copper mining stocks, Rio Tinto Group (RIO) and Marubeni Corporation (MARUY), have significantly outperformed the broader market by returning 22.5% and 19% year-to-date, respectively. Headquartered in London, the United Kingdom, RIO has a market capitalization of $131.87 billion, while the Tokyo-based MARUY has a market cap of $20.03 billion.
As part of its plan to boost copper development, MARUY has earmarked ¥1 trillion. MARUY’s CEO Masumi Kakinoki said that the trading house was looking to meet the rising demand for the metal used in electric vehicles.
Copper Stocks to Buy Now
Freeport-McMoRan Inc. (FCX)
FCX is a mining company that operates through geographical assets with proven and probable copper, gold, and molybdenum reserves. The company’s segments include refined copper products, copper in concentrate, gold, molybdenum, oil, and other.
Analysts expect FCX’s EPS and revenue for the quarter ending March 31, 2022, to increase 76.5% and 29.8% year-over-year to $0.90 and $6.29 billion, respectively. Its EPS is expected to grow 28.9% per annum over the next five years. Over the past six months, the stock has gained 55.8% to close the last trading session at $50.90.
In terms of trailing-12-month gross profit margin and net income margin, FCX’s 47.33% and 18.85% are 54.7% and 114.6% higher than the industry averages of 30.60% and 8.78%, respectively. Also, its ROCE, ROC, and ROA of 35.60%, 16.88%, and 8.97% are higher than the industry averages of 12.86%, 7.43%, and 5.50%, respectively.
FCX’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Quality. It is ranked #13 out of 36 stocks in the Industrial – Metals industry. Click here to see the other ratings of FCX for Growth, Value, Momentum, Stability, and Sentiment.
Southern Copper Corporation (SCCO)
SCCO is an integrated copper producer. The company produces copper and, in the production process, obtains several by-products, including molybdenum, silver, zinc, sulfuric acid, and other metals. Its segments include the Peruvian operations, the Mexican open-pit copper mines, and the Mexican underground mining operations segment identified as the IMMSA unit.
For the quarter ending June 30, 2022, SCCO’s EPS is expected to increase 2.5% year-over-year to $1.24. Its revenue for fiscal 2023 is expected to increase 4.4% year-over-year to $11 billion. Over the past six months, the stock has gained 38% to close the last session at $78.
In terms of trailing-12-month gross profit margin and net income margin, SCCO’s 65.37% and 31.07% are 113.6% and 253.8% higher than the industry averages of 30.60% and 8.78%, respectively. Also, its ROCE, ROC, and ROA of 44.19%, 24.88%, and 18.57% are higher than the industry averages of 12.86%, 7.43%, and 5.50%, respectively.
SCCO’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Stability. Within the same industry, it is ranked #11. To see the other ratings of SCCO for Growth, Value, Momentum, and Sentiment, click here.
Hudbay Minerals Inc. (HBM)
Headquartered in Toronto, Canada, HBM is a diversified mining company. It is engaged in producing copper concentrate, consisting of copper, gold, silver, and zinc metal. It is focused on the exploration, development, operation, and optimization of properties it already controls, as well as other mineral assets it may acquire.
Analysts expect HBM’s EPS for the quarter ending June 30, 2022, to increase 1,150% year-over-year to $0.25. Its revenue for fiscal 2022 is expected to grow 15% year-over-year to $1.73 billion. Over the past six months, the stock has gained 29.1% to close the last trading session at $8.10.
In terms of trailing-12-month gross profit margin and EBITDA margin, HBM’s 45.43% and 27.25% are 48.4% and 28% higher than the industry averages of 30.60% and 21.29%, respectively.
HBM’s POWR Ratings reflect this promising outlook. It has a B grade for Growth.
Again, it is ranked #14 in the same industry. Click here to see the additional ratings of HBM for Value, Momentum, Stability, Sentiment, and Quality.
FCX shares were trading at $49.44 per share on Tuesday afternoon, down $1.46 (-2.87%). Year-to-date, FCX has gained 18.87%, versus a -4.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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