This Undervalued Commodity Stock Has Major Upside in 2022


Commodities have been in a major bullish market. Due to strong demand and lower production, the bullish market is in its infancy. Read on to find out why Nexa Resources (NEXA) is one of the most undervalued commodity stocks.



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Over the past year, commodities have significantly outperformed stocks and bonds. This bullish market should continue as the fundamentals of supply and demand continue to support.

Despite the strong appreciation of prices, CAPEX has remained quite low. To date, companies are using their largest cash flow to pay off debt and return money to shareholders through repurchases and dividends. Until we see a significant response from the supply side, dips should be bought.

Of course, goods are a broad category, but some of the best opportunities can be found in industrial metal miners. An industrial metal with especially strong foundations is zinc. Zinc is used to galvanize steel and iron or for alloying. There is even hope that it could be used instead of lithium for electric vehicle batteries, which would have huge environmental and cost benefits. Russia supplies about 7% of the world’s zinc, so zinc prices have risen by 20% since troops began accumulating on the border with Ukraine.

I want to talk about it today Nexa Resources (NEXA), which is one of the leading producers of zinc in the world. Keep reading to find out why this is my stock of the week …

Company background

NEXA produces a variety of metals such as zinc, silver, gold and copper. But zinc is their main source of income. Another source of income is its smelting operation. It currently owns and operates 5 underground polymetallic mines located in Brazil and Peru.

Prior to September 2017, the company was known as VM Holding SA, before changing its name to Nexa Resources SA. The company was founded in 1956 and is headquartered in Luxembourg City, Luxembourg, and is a subsidiary of Votorantim SA In its last quarter, the company produced 66,000 tons of zinc. Its production cost was $ 45 per tonne. Of course, the company’s profits have exploded due to the bullish zinc market.

Zinc supply and demand

Although zinc prices have fallen in the last two weeks, they remain at a surprising distance from 14-year highs due to strong industrial demand and lower production due to coronavirus. Another recent catalyst for zinc is that smelting operations in Europe are running below capacity due to high energy prices.

In 2022, analysts expect zinc demand to increase by 2.2%, with the main driver of the increase in car production as chip shortages decrease. Recent outbreaks of coronavirus in Asia have affected demand in the first quarter, but this is expected to increase as the virus burns.

Over the next two years, analysts expect production to increase and normalize to higher levels. But demand is also expected to rise due to the strength of the industrial economy, rising infrastructure spending and more investment in offshore energy production.

GARP

As zinc prices have risen from less than $ 2,000 per tonne to more than $ 4,000 per tonne over the past 2 years, it’s no surprise that NEXA’s profits are booming. In its last quarter, the company reported $ 0.48 per share in earnings, 182% more than last year. The company’s revenue increased by 20%.

These figures should only increase given that zinc prices have risen by 20% a year. By 2022, analysts forecast $ 2.32 in EPS and $ 2.93 million in revenue. And, this forecast is based on zinc prices averaging $ 3,600 for the year, while we’re already more than 10% above those levels, which means there’s likely to be more updates.

This kind of performance in 2022 also means that the shares are very attractively priced with a forward P / E of 4. The company has a market capitalization of $ 1.4 billion and nearly $ 800 million in cash. It also pays a generous 3.5% dividend that it has maintained since it was made public in 2014.

This makes NEXA an excellent “reasonably priced growth” (GARP).

POWR ratings

NEXA’s attractive rating provides a downward cushion. Profit growth is expected to continue due to rising zinc prices. In addition, zinc prices must continue to be supported as Europe faces high electricity prices.

In the medium term, more zinc supply should reach the market due to the return of more mines online and the reduction of bottlenecks in transport. Undoubtedly, this could lead to a setback or a takeover.

But in the long run, demand should continue to grow, as zinc is essential for so many uses. And the world has invested little in new production. Historically, bullish commodity markets do not run out until there is a sufficient supply response.

These solid foundations are reflected in the NEXAs POWR ratings. The shares have an overall rating of B, equivalent to a purchase in our proprietary rating system. B-rated stocks posted an annual return of 21.1%, surpassing the annual return of 8.0% on the S&P 500.

Also noteworthy in terms of component ratings, NEXA has a B value for having a P / E of 11, which is half of the S&P 500, and one of the best price-to-growth (PEG) ratios on the market. . . The stock ranks 11th out of 47 shares in the Mining – Diversified industry. Click here to see the full POWR ratings for NEXA.

What to do next?

If you’d like to see more major actions for less than $ 10, you should check out our free special report: 3 stocks to DOUBLE this year

What gives these actions the right things to become big winners?

First, because they are all low-cost companies with explosive growth potential, who excel in key areas of growth, sentiment, and momentum.

But even more important is that they are all better rated stocks according to our coveted POWR rating system, yes, this same system where the best rated stocks have an average annual return of 31.10%.

Click below to see these 3 interesting actions that could double (or more!) Next year:

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Shares of NEXA closed at $ 9.36 on Friday, up $ 0.03 (+ 0.32%). At present, NEXA has gained 24.07%, compared to a -12.99% increase in the S&P 500 benchmark index over the same period.


About the author: Jaimini Desai

Jaimini Desai has been a writer and financial reporter for almost a decade. Its aim is to help readers identify risks and opportunities in the markets. He is the chief growth strategist for StockNews.com and the publisher of the POWR Growth and POWR Stocks Under $ 10 newsletters. Learn more about Jaimini’s background, along with links to his latest articles.

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