Perhaps no sector of stocks has had a worse time over the last few quarters than mining stocks.
Never fully recovering from the Great Recession, global mining stocks have been hit hard in recent months by lackluster demand from their chief consumer. With China now seeing its economic growth fall by the wayside as it transitions from a manufacturing economy into a consumer-driven one, prices for all manner of raw materials have dropped hard.
And when you make you your money by selling a commodity, your bottom line is pretty driven by that underlying price. So it’s no wonder why the mining stocks’ proxy exchange-traded fund — the SPDR S&P Metals and Mining ETF (XME) — is down about 21% over the last 52 weeks.
However, there might be a glimmer of hope for the mining stocks.
Prices for many metals and materials have surged in recent weeks as many investors have finally rushed into commodities bargains. As a result, many mining stocks have surged. According to Bloomberg, these recent gains have been the strongest rally in metal and mining stocks since 2008. It also could mean that we’ve hit a bottom on prices for the mining stocks.
With better times ahead, investors may want to consider mining stocks for their portfolios. There’s still plenty of upside. Here are three metals and mining stocks to buy today.
Metals & Mining Stocks to Buy: BHP Billiton Limited (ADR) (BHP)
When it comes to the mega-mining stocks, you can’t get more mega than BHP Billiton Limited (ADR) (BHP). BHP has its hands in many natural resources. That includes everything from copper and nickel to iron ore and crude oil.
That huge, diversified pool of natural resources provides BHP plenty of revenue diversification. Copper’s not doing so well? Odds are thermal coal is.
The problem is when all of them are sputtering.
And sputter they did. BHP reported its first profit loss in nearly 16 years and, perhaps even more painfully, the miner cut its dividend.
And yet, BHP may be a great value in the making. By cutting its dividend, BHP saves itself some serious cash and helps keep its credit rating high. There are going to be plenty of struggling miners with great assets hitting the market soon enough. BHP will have the cash to snag them up on the cheap and capitalize on the opportunities.
Secondly, the dividend cut and its robust balance sheet should help BHP “kick the can” long enough for the cyclical nature of commodities to kick back in.
In the meantime, investors can sit back and collect a post-cut 5.8% dividend yield.
Metals & Mining Stocks to Buy: Teck Resources Ltd (USA) (TCK)
Teck Resources Ltd (USA) (TCK) is Canada’s largest diversified mining company, but you wouldn’t know it from its market cap or share price action. TCK stock is down more than 50% over the last year.
Part of that has to do with the firm’s three chief products — coal, copper and zinc. All three have tanked in recent years. Teck owns and controls more than 100 years worth of coal reserves, and it’s no secret how coal has been doing.
Also not helping is Teck’s relatively high debt load of $6.9 billion. Lower revenues thanks to lower commodity prices don’t exactly make investors happy in the first place, let alone when you have harder-to-service debts.
But the recent rise in commodity prices has changed TCK’s fortunes for the better.
With copper and zinc prices surging in 2016, TCK should be able to realize better cash flows and profits, and ultimately service its debts. Investors and traders seem to think so. TCK shares have gained over 100% since the start of 2016.
And the rally in TCK could continue. Any continued bump upwards in commodity prices will have a positive effect on TCK shares. Ultimately, TCK represents a leverage play on the mining stocks.
Metals & Mining Stocks to Buy: Southern Copper Corp (SCCO)
SCCO offers a pretty much pure play on metal.
The firm operates its mines in politically stable nations — Mexico, Chile and Peru — and uses a fully integrated business model. That means Southern Copper mines, refines and produces copper. The integrated process and operating in stable locales has helped it become one of the lowest-cost producers of the metal.
The firm has also relatively low debt, and what debt it has doesn’t mature for quite some time.
That’s helped SCCO outperform peers like Freeport-McMoRan Inc (FCX) on various earnings and cash flow metrics. And that outperformance should continue throughout the new year if copper continues to move higher.
Adding further to this is SCCO’s continued expansion plans, which incrementally add capacity, as well as its continued plans to hoard cash rather than raise debt/equity.
At the end of the day, SCCO represents one of the best mining stocks to buy if copper continues its rally over the course of the year.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.