The ramped-up production of electric vehicles and renewable energy grids is expected to increase the demand for copper. And declining copper inventories amid growing demand should pump up copper prices. Thus, we think it could be wise to invest in fundamentally sound copper stocks Anglo American (NGLOY) and Southern Copper (SCCO) to take advantage of their current share price dips. Let’s discuss.
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Copper prices slumped from a $10,747.50 record high price in May on investors’ concerns surrounding the global economic recovery with the continued spread of the COVID-19 Delta. Also, weakened output from China contributed to weak momentum in copper prices.
However, copper prices appear to be rebounding on declining exchange inventories and the threat of a supply squeeze. Benchmark copper on the London Metal Exchange (LME) hit $9,268 per tonne, up 2.5%, on October 7. Analysts expect the rising demand to fuel a price rally soon. Furthermore, in May Bank of America anticipated that copper prices could hit $20,000 per metric ton by 2025.
Copper is the third most used metal globally, and the ramped-up production of electric vehicles should further heighten the demand for copper in the coming months. Thus, we think it could be wise to scoop up fundamentally sound copper stocks, Anglo American plc (NGLOY), and Southern Copper Corporation (SCCO) to take advantage of their current price dip.
Anglo American plc (NGLOY)
London-based NGLOY is a global mining company. The company is focused on securing, developing, and managing a portfolio of high-quality and long-life resource assets, including diamonds, copper, platinum group metals, thermal coal, iron, nickel, and manganese ores, as well as alloys.
In August, NGLOY signed a memorandum of understanding (MOU) with Salzgitter Flachstahl, a manufacturer of a range of high-quality steel products, to collaborate on the decarbonization of the steelmaking industry. The two companies intend to conduct research, explore ways to reduce carbon emissions and develop broader hydrogen technologies. This is aligned with NGLOY’s ambition to achieve carbon neutrality across its operations by 2040.
The company is also planning to work with South Africa’s Department of Science and Innovation (DSI), the South African National Development Institute (SANEDI), Engie, and Bambili Energy, on the implementation of relevant projects to accelerate the development of the hydrogen economy.
For the six months ended June 30, NGLOY’s revenues increased 114% year-over-year to $21.78 billion. Driven by strong market demand and operational resilience amid pandemic disruptions, the company generated an underlying EBITDA of $12.14 billion, indicating an increase of 262% year-over-year. Its profit attributable to equity shareholders of the company increased 1,001% from the same period last year to $5.19 billion. The company’s EPS increased 1000% year-over-year to $4.18.
The Street expects NGLOY’s revenues to increase 35.7% year-over-year to $41.94 billion in the current year. NGLOY’s shares have gained roughly 48% in price over the past year. However, the stock has dipped nearly 15% over the past month.
NGLOY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
NGLOY has an A grade for Value, and a B for Growth and Quality. Among the 35 stocks in the Industrial – Metals industry, NGLOY is ranked #6. Click here to view additional POWR Ratings for Momentum, Sentiment, and Stability.
Southern Copper Corporation (SCCO)
SCCO in Phoenix, Ariz., mines, smelts, and refines copper and other minerals in Peru, Mexico, Argentina, Ecuador, and Chile. The company is a majority-owned, indirect subsidiary of Grupo Mexico S.A.B. de C.V.
SCCO’s sales grew 62.3% from their year-ago value to $2.90 billion in its fiscal second quarter ended June 30, while its operating income improved 190.2% year-over-year to $1.68 billion. The company’s net income increased 259.4% year-over-year to $932.70 million. Adjusted EBITDA rose 141.9% from the prior-year quarter to $1.86 billion over this period.
A $11.02 billion consensus revenue estimate for the current year indicates a 38.1% improvement from the last year. Analysts expect the company’s EPS to come in at $4.42 in the current year, reflecting a 118% rise year-over-year. Furthermore, its EPS is expected to grow 21.3% per annum over the next five years. Over the past month, SCCO share price has declined marginally.
It is no surprise that SCCO has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The stock also has a B grade for Stability and Quality. It is ranked #8 in the Industrial – Metals industry.
To see additional SCCO ratings for Growth, Value, Momentum, and Sentiment, click here.
NGLOY shares were unchanged in premarket trading Wednesday. Year-to-date, NGLOY has gained 21.77%, versus a 17.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.