- Copper prices have fallen by about 20% from their recent high.
- Despite the correction, copper stocks should continue to benefit as prices remain high
- Demand remains for renewable energy and electric vehicles
The recession continues to play into the minds of investors around the world. As a result, copper prices have retreated from trading around $ 4,800 to their current levels of about $ 3,900 per tonne. Despite these fears, copper prices should remain high as copper supply continues to decline. In addition, if the monetary hardening trend ends in the near future, copper prices could rise again rapidly. In addition, analysts predict that there will likely be a deficit of about 100,000 tonnes in 2022 although copper supply will increase by 43% year-on-year. It should be noted that analysts had previously estimated an excess of 50,000 tonnes.
The two most significant sources of increased demand remain renewables and electric vehicles. Solar panels, windmills and electric vehicles continue to experience strong demand, and in addition to strong demand there is a backlog of orders due to the recent semiconductor shortage, which only exacerbates the shortage.
Despite the shortage, fears of recession continue to affect prices, and countries such as China, which has been the largest consumer of copper, continue to covet COVID. In addition, the Chinese real estate market seems to be rapidly facing a major drop, as demand for housing has fallen down a cliff. Therefore, despite the difference between supply and demand, copper prices may continue under pressure in the foreseeable future.
Despite the problems weighing on copper prices, copper stocks may still provide some upside, as valuations remain reasonable and earnings are likely to continue to rise throughout the year.
Consider the following copper stocks as part of your portfolio
Southern Copper (NYSE: SCCO) is a copper company based in Phoenix, Arizona, with operations in North and South America. Shares have fallen 33% from their recent high, as investor fears continue to affect market sentiment. Southern Copper has a dividend yield of 9% and is trading at a price-to-earnings (P / E) of 11.
The company attended a reasonable quarter with a one-digit increase in revenue and a net profit of 2.47%. Management has indicated that revenue and profitability will improve as the Toquepala and La Caridad mines are back in operation over the next couple of quarters. The company expects total projects to be about 922,000 tonnes for the year, and after the new sites go online by the end of the year, production by 2023 will exceed one million tonnes. In addition, when mines mature by the end of the decade, production can increase to 1.8 million tonnes. Stocks may be suitable for investors looking for a company with a deep asset reserve and a steady cash flow.
Freeport-McMoran (NYSE: FCX) is an American mining company based in Phoenix, Arizona, with operations in several countries, including Indonesia, where it produces copper and gold. And in North and South America, where it produces copper. Freeport has witnessed a significant increase in revenue and profits during the most recent quarter due to rising production and commodity prices as revenue rose 36% and net revenue rose 112% year-on-year. Shares currently trade at a P / E of 9, but have a low dividend yield of 1%. The net profit margin is expected to be around 20% and revenues are expected to amount to $ 6-6.5 billion during the year.
Shares have dropped 42% from their 52-week high since management declared, during the previous earnings call. copper production is likely to be around 1% lower. Management has also indicated that operating costs are likely to increase due to increased spending on energy and other commodities. Regardless, stocks remain economic and a lower 1% target could return to positive quickly by the end of the year. Earnings are expected to increase by a high digit during the year, placing the advanced P / E around 8x earnings. On the other hand, suppose copper prices remain high going forward, the P / E could go down to 6-7x. But even if prices stay where they are, they would still be much higher than they were in 2019. Freeport shares are very likely to be oversold and remain an interesting consideration for investors looking to dive into copper stocks.