Morgan Stanley says these copper-exposed stocks could rise in 2021 as the tail winds line up

Morgan Stanley analysts said on Monday that stocks exposed to copper could rise in 2021 and the opportunity to buy might be close.

HG00 copper prices,
+ 0.31%
It rose at the end of last year through 2021, reaching $ 3,696 a pound – its highest level since 2013, after falling to a four-year low in March 2020. Copper-exposed stocks enjoyed a rally, but Morgan Stanley said there was still more to come. .

Despite average total shareholder returns of around 63% since the start of 2020, equity analysts at the investment bank said they still saw a positive risk return on copper-exposed stocks.

They cited a number of tailwinds, including an accelerating economic cycle and expected contraction, which “strongly favors copper”.

“As such, we argue that there is an additional 30% hike in current equity prices in case spot commodity prices continue until 2021,” they said in a note.

Read: Here’s what the industrial minerals have in store after the 2020 Rally of Steel, Iron Ore and Copper

Copper’s role in the global shift towards a low-carbon economy was another cause for positivity. Analysts said its position as a key enabler of decarbonization and the switch to electricity provides a “compelling secular growth angle as investor focus on climate change continues to grow.”

They added: “Against this background, we will use the potential fluctuations in the market around the Chinese New Year over the next month as a buying opportunity with a bullish outlook in the second quarter of Year 21.”

When it comes to the best picks for 2021, mining and commodity trading giant Morgan Stanley favored Glencore Glen.
-1.09%And the
Miner base mineral Lundin Mining LUN,
+ 1.22%And the
And the mining and minerals company First Quantum FM,
-0.35%.

They said that despite the strong gains in the past year, they still see attractive opportunities because “the narrow core picture is reinforced by bullish macroeconomic drivers”.

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With analysts assessing using hypothetical fair values ​​and a 2021 earnings based on spot prices, Glencore was up 67%, Lundin up 34% and First Quantum up 31%. Under the bullish Morgan Stanley case for copper at $ 4 a pound, those gains rose to 93%, 61% and 54%, respectively.

They said Glencore-listed FTSE 100 has an attractive commodity mix with exposure to base metals and a compelling valuation, rating the stock overweight with a target price of 274 pence. Lundin has a “most compelling turnaround story” and re-tightens the potential with improved operational momentum set to continue into the first half of 2021, and increased profit potential around the corner. First Quantum will also benefit from “scaling up the recovery in copper demand after COVID” and its proactive cash management.

Read: Bullish Commodity Market? “This ship has set sail,” Cory says at Goldman

Glencore and Lundin are also trading at a heavy discount, offering a valuation store “if metal prices eventually decline,” they said, while First Quantum also has “enough valuation space”.

Analysts said that the risks are increasing for Antofagasta Anto,
+ 0.53%
And polyidine urine,
+ 0.10%
– Both are rated the same weight – ahead of upcoming earnings. Antofagasta may disappoint when it comes to cash cost and capital expenditures guidance for 2021 due to foreign exchange headwinds and project reviews, while Boliden may raise its capital forecast on projects and “confuse private dividends”.

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