The bullish sentiment in metal stocks has been growing alongside their prices for months. Hopes of an economic boom and a mammoth infrastructure bill give buyers all the reason needed to swarm. I’ve scoured the industry for the best stocks to buy, and today I’m sharing my findings.
The reopening theme isn’t new. It’s been buoying stocks across the land since November when Pfizer (NYSE:PFE) announced its hyper-effective vaccine. But just because the narrative’s novelty is wearing off doesn’t mean its effects are. A torrent of pent-up demand fueled by historic stimulus will be unleashed on the economy over the next few years.
And then, there’s the multitrillion-dollar infrastructure bill that Biden administration is working on. If passed, it’s bound to add fuel to the bonfire already raging in metal stocks like the following three:
If you’re looking to add exposure to steel, copper, or aluminum in your portfolio, these all deserve consideration. Let’s take a closer look at each chart.
Stocks to Buy: United States Steel (X)
United States Steel is one of the most popular plays in the space. Its average daily trading volume runs north of 20 million shares, and it has extremely liquid options to boot. The lower price tag of $21 also makes it a favorite among the retail crowd. Since bottoming last March at $4.54, X stock has climbed 381% to its current perch.
This week’s pullback stopped dead at the rising 50-day moving average. Buyers returned in a big way on Thursday, and prices are up another 7% today. The message over the past few days is clear: dip buyers are alive and well.
If you want a higher probability trade, then naked puts are appealing here. For the more aggressive readers looking to better capitalize on trend continuation, I suggest bull calls.
The Trade: Buy the June $22/$30 bull call for $2.
If you thought X’s numbers were impressive, wait till you see Freeport’s. The copper giant bottomed at $4.82 last year and has since boomed to $33 – a gain of 585%. This week’s drop resulted in the first close below the 50-day moving average since last April. But the reversal on Thursday and today’s follow-through suggests it could be a false support break.
Implied volatility is too low to make selling puts attractive here. Instead, I suggest bull calls to bet on a return to the recent highs at $39.
The Trade: Buy the June $33/$39 for $1.95.
The max loss is $1.95 and will be forfeit if FCX is below $33 at expiration. The max gain is $4.05 and will be captured if prices rise past $39 by expiration.
Alcoa rounds out today’s list of metal stocks to buy. Its resurrection hasn’t been as consistent as its predecessors, but it doesn’t matter. Every dip, however messy, has been a buying opportunity regardless. The aluminum behemoth is popping nearly 8% this morning as buyers swarm anything and everything related to metals.
With the rally, AA has reclaimed the north side of the 20-day moving average and is now within striking distance of a new 52-week high. The past month of chop has created a high base pattern that is now on the verge of breaking out. Volume patterns are also lending a hand to the bullish argument. Very few distribution days have cropped up over the past month, showing selling pressure remains contained.
The Trade: Buy the June $32/$39 bull call spread for $2.10.
Your risk is $2.10, and the potential reward is $4.90.
On the date of publication, Tyler Craig held a LONG position in FCX.
For a free trial to the best trading community on the planet and Tyler’s current home, click here!