Investors have been waiting months for mining stocks to regain their mojo. That time may be near.
On the surface, the
SPDR S&P Metals and Mining
The ETF (ticker: XME) had a great 2021. It returned 35% last year, outperforming the
SPDR S&P 500
ETF (SPY) six percentage points. But almost all of the gains came in the first four months or so of 2021. From its high of $47.49 on June 1 through the end of 2021, the price of the SPDR S&P Metals & Mining ETF fell 5, 7%.
This year has also started with a bang. Concerns about inflation, which hit a nearly 40-year high in December, and tighter monetary policy pushed investors away from growth stocks in favor of value, and mining stocks were among beneficiaries. The Metals & Mining ETF gained 5% in the first two weeks of 2022 to $46.98, near its previous highs.
Now the stocks just have to go up. They certainly have momentum. V22 market technician John Roque notes that of the 15 stocks and ETFs he tracks, only one,
Rio tinto (RIO), has a neutral technical score, while 14 rates Good/Strong. None have a low score. “The message here is consistent with our theme of focusing on commodity-related stocks because if we’re not focusing on them in a rising commodity market, when will we?” Castling asks rhetorically.
And commodities really seem to be in a bull market. Copper prices, for one, rose 0.2% last week, their fifth gain in six weeks, and closed at their highest level since October, a good sign for the broader economy and stocks. mining in particular.
Rising copper prices should also help miners when they start reporting income this month. To consider
Freeport-McMoRan (FCX), which reports Jan. 26. It is expected to report earnings before interest, taxes, depreciation and amortization, or Ebitda, of $3.24 billion, higher than the consensus forecast of $3.1 billion, writes RBC analyst Sam Crittenden, although costs higher and Covid disruptions could offset some of the price gains.
The big risk comes from China. The world’s second largest economy is collapsing, thanks to continued Covid lockdowns and general malaise. But Chinese policymakers are starting to act – the People’s Bank of China released $188 billion of reserves in the banking system last month – and a recovery could begin in the first or second quarter of the year, writes Chris LaFemina, analyst at Jefferies. “We think most mining stocks will do well over the next year,” he concludes.
Freeport, at $44.08 per share, could be a big winner. Although it is likely to beat earnings and Ebitda estimates, it is trading at just 9.8 times forward 12-month earnings, well below its five-year average of 14.4 times. But more than that, it went from a lack of cash to a strong balance sheet.
This allowed Freeport to provide a variable dividend of 30 cents per share in addition to its regular dividend of 30 cents and to repurchase $3 billion of stock, while maintaining sufficient cash for maintenance, growth and a mine’s strong balance sheet. .
Michael Dudas of Vertical Research Partners calls it one of his favorite stocks. It is also one of ours.
Write to Ben Levisohn at [email protected]