Base metals have seen record-high prices that have doubled across the board year-over-year (YOY). The recent rally in metal prices has also put metal stocks in the limelight. Booming industrial activity, the Infrastructure Investment and Jobs Act, and post-pandemic supply chain issues boost the metal industry as a whole.
Investing in metal stocks such as gold, copper, and steel is predominantly seen as a hedge against inflation. This investment strategy offers a pragmatic way to capitalize on rising costs while diversifying investor portfolios. Recent military developments in Eastern Europe have given a boost to gold, as well.
Academic research highlights: “The precious metals have proved to offer the most effective hedge against inflation during the periods of high uncertainty in the international markets. […] The spot prices of precious metals are sensitive to the episodes of economic and financial turmoil.”
Goldman Sachs Group (NYSE:GS) analyst Jeffrey Currie sees 2022 as the start of a “commodities supercycle” fueled by a recovery from the pandemic and stimulus measures that boost demand. He points out the metals industry as one of the primary beneficiaries of the supercycle and cites: “‘At its core is not only a structural decline in supply across the whole commodity complex but it’s also a structural rise in demand’, he added, saying a supercycle could be ‘multi-year, potentially a decade.'”
With that said, here are seven metal stocks to buy for lucrative returns in 2022:
- Barrick Gold Corporation (NYSE:GOLD)
- Franco-Nevada Corporation (NYSE:FNV)
- Freeport-McMoRan (NYSE:FCX)
- Rio Tinto Group (NYSE:RIO)
- Steel Dynamics (NASDAQ:STLD)
- United States Steel Corporation (NYSE:X)
- Wheaton Precious Metals (NYSE:WPM)
Metal Stocks: Barrick Gold Corporation (GOLD)
- 52-week range: $17.27 – $25.37
- Dividend Yield: 1.77%
Barrick Gold is the second-largest gold producer in the world. Based in Toronto, Canada, Barrick owns 14 gold mines, six of which are Tier One Gold Assets. Our readers may already know that a Tier One mine means it has a life expectancy of over 10 years with annual production of over 500,000 ounces of gold.
Barrick Gold announced fourth-quarter (Q4) 2021 results on Feb. 16. Revenue increased 17% to 3.3 billion compared to the prior quarter. Adjusted net earnings came in at $626 million, or 35 cents per share, up from $419 million in the prior quarter. The gold producer ended the year with net cash of $130 million, after the record cash distribution of $1.4 billion to shareholders.
Q4 results beat analysts’ estimates, supported by a surging price for gold and strong production at Barrick’s Nevada mines. In 2021, all-in sustaining costs (AISC) for Barrick’s gold and copper operations increased by 6.1% and 17.5% YOY, respectively. Operating costs are expected to continue their rise in 2022.
On these metrics, Chief Executive Officer (CEO) Mark Bristow remarked, “The gold industry is facing inflation, but that’s good for gold. It is what it is; we have to manage it.” He added that “energy was the biggest driver of cost increases, and Barrick’s solar power facilities at mines in Nevada and Mali would help reduce its power costs.”
GOLD stock hovers at $22 territory, up 18.5% year-to-date (YTD). Shares are trading at 23 times forward earnings and 3.4 times current sales. The 12-month median price forecast for Barrick Gold stock stands at $25.21.
Franco-Nevada Corporation (FNV)
- 52-week range: $105.62 – $163.79
- Dividend yield: 0.87%
Franco-Nevada is a leading gold-focused streaming and royalty company based in Canada. It operates a diversified portfolio of precious metals and royalty streams with agreements on 325 mining properties.
The streaming company covers the costs of new agreements from its steady stream of cash flows without incurring debt. Royalty and streaming companies provide upfront cash to miners. In return, they get the right to buy precious metals at reduced prices in the future.
Franco-Nevada released Q3 results in early November. Despite a decline in gold prices at that time, revenue increased 13% YOY to $316.3 million. Adjusted net income came in at $165.6 million, or 87 cents per diluted share, up 9% YOY. Cash and equivalents ended the quarter at $346.7 million.
Following the announcement, CEO Paul Brink remarked, “Higher energy prices have led us to increase our 2021 Energy guidance for the second time this year. Margins have moved higher this year due to the inflation-protected nature of our business model.”
FNV stock hovers around $146, up 37% over the past 12 months. However, FNV shares are not cheap, trading at 40.7 times forward earnings and 22.2 times trailing sales. The 12-month median price forecast for Franco-Nevada stock is $153. Potential investors could wait for a dip in price before buying FNV shares.
Metal Stocks: Freeport-McMoRan (FCX)
- 52-week range: $29.45 – $47.40
- Dividend yield: 0.65%
Phoenix, Arizona-based Freeport-McMoRan is the largest copper producer worldwide. The company operates assets that include the Indonesian Grasberg mining complex, the largest copper and gold mine worldwide in recoverable reserves.
Copper has become a critical commodity in global decarbonization strategies, which include electric vehicles (EVs), solar panels, and smart buildings. Market analysts highlight the bullish outlook for copper futures amidst increasing digitalization and rapid adoption of EVs worldwide.
Analysts at Goldman Sachs remain bullish on the copper market. In its latest copper price analysis, the investment bank noted that “‘as the cross-asset investor’s favorite barometer for global growth, copper often trades with shifts in broader macro sentiment. However, it is important to remember copper remains a physical good, whose futures price is ultimately tied to the ability to deliver physical units into the exchange… should those stocks deplete, its price must balance the market, regardless of what is occurring in the broader economy.'”
Freeport released Q4 2021 results on Jan. 26. Revenue soared 38% YOY to $6.2 billion. Net income increased to $1.11 billion, or 74 cents per diluted share, up from $708 million, or 48 cents per diluted share, in the previous year. Cash and equivalents ended the quarter at $8.1 billion.
Copper prices continue to rally as stockpiles have fallen to historically low levels. This decline in reserves helped the average price per pound of copper to increase 47% YOY to $4.33. Meanwhile, this surge in copper prices helped generate a 155% YOY increase in Freeport’s operating cash flows to $7.7 billion.
The company has pledged to return up to 50% of its cash flow to investors via share repurchases and variable dividends.
FCX stock is currently priced around $47, up 35% over the past 12 months. Shares are trading at 12.55 times forward earnings and 2.79 times trailing sales. The 12-month median price forecast for Freeport-McMoRan stock stands at $48.
Rio Tinto Group (RIO)
- 52-week range: $59.58 – $95.97
- Dividend yield: 10.17%
The Rio Tinto Group is the world’s second-largest metals and mining corporation. The company explores and extracts various minerals worldwide. They include iron ore, copper, aluminum, lithium, and diamonds.
The miner recently reached an agreement with the Mongolian government to resume work on the Oyu Tolgoi copper mine. Management anticipates producing 500,000 metric tons of copper per year through the mine. In addition, the miner is well-positioned to benefit from the recent jump in iron ore prices due to the easing of emissions cutbacks in the steel industry in China.
Rio Tinto announced annual 2021 financials on Feb. 23. Revenue increased 42% YOY to $63.5 billion. Net income came in at $21.4 billion, or $1.295 per diluted share, up from $9.8 billion, or 60 cents per diluted share a year ago. In addition, the company generated a free cash flow of $17.7 billion in 2021.
On the results, CEO Jakob Stausholm remarked, “’The recovery of the global economy, driven by industrial production, resulted in significant price strength for our major commodities […] achieving record financial results with free cash flow of $17.7 billion andunderlying earnings of $21.4 billion.’”
Rio offers a reliable passive income stream with its generous 10.17% dividend yield. In fiscal 2021, the company has returned $15.4 billion of cash to shareholders.
The stock hovers around $78, up around 10.8% over the past 12 months. Shares are trading at 7.7 times forward earnings and 2.15 times trailing sales. The 12-month median price forecast for Rio Tinto stock stands at $74.08.
Metal Stocks: Steel Dynamics (STLD)
- 52-week range: $42.24 – $74.37
- Dividend yield: 1.51%
Steel Dynamics is a diversified domestic steel producer and metals recycler based in Fort Wayne, Indiana. The company manufactures steel products that primarily serve the construction, automotive, manufacturing, and transportation end-markets.
With a production capacity of 13 million tons of steel, the company is the third largest producer of carbon steel products stateside. The steel producer benefited from the rising price for steel and surging demand for steel in the construction, auto, and industrial sectors.
Capitalizing on the 80% YOY increase in the average selling price for steel in 2021, the company produced a record 11.2 million tons of steel. A year ago, it produced 10.7 million tons.
Steel Dynamics announced Q4 2021 numbers on Jan. 24. Revenue increased 104% YOY to $5.3 billion. Net income came in at $1.1 billion, or $5.49 per diluted share, up from $188 million, or 89 cents per diluted share in the prior-year quarter. Cash and equivalents ended the period at $1.25 billion.
On the results, CEO Mark D. Millett remarked, “The team delivered a tremendous operational and financial performance during 2021, achieving record net sales of $18.4 billion, operating income of $4.3 billion, and adjusted EBITDA of $4.6 billion.“
STLD stock hovers around $61, up almost 80% over the past year. Shares trade at 4.4 times forward earnings and 0.7 times trailing sales. The 12-month median price forecast for Steel Dynamics stock is $77.50.
United States Steel Corporation (X)
- 52 week range: $16.82 – $30.57
- Dividend yield: 0.74%
U.S. Steel is an integrated manufacturer of steel products headquartered in Pittsburgh, Pennsylvania. It produces strip mill plates, tin mill products, as well as iron ore.
The steelmaker recently broke ground in Arkansas on the company’s next-generation sustainable and technologically advanced steel mill. Analysts point out that “the $3 billion steelmaking facility will be the most advanced in North America.”
U.S. Steel announced Q4 2021 results on Jan. 27. Revenue increased 119% YOY to $5.62 billion. Adjusted net income came in at $1.04 billion, or $3.64 per diluted share, compared to an adjusted net loss of $60 million, or 27 cents per diluted share a year ago. Liquidity was $4.971 billion, which includes cash of $2.522 billion at the end of the quarter.
The Infrastructure Investment and Jobs Act and removal of tariffs in overseas markets like the European Union and Japan offer strong tailwinds for top-line growth in 2022.
Yet, U.S. steelmakers warn that exempt nations can act as pass-through points for metal coming from bad actors like China. They worry that Europe, which recently received an exemption, and Japan could unknowingly import metal from restricted countries and then export that to the U.S., flooding the market.
X stock currently hovers slightly around $27, up 60% over the past 12 months. Shares are trading at a steep discount at 2.2 times forward earnings and 0.3 times current sales. The 12-month median price forecast for U.S Steel stock stands at $25.50.
Metal Stocks: Wheaton Precious Metals (WPM)
- 52 week range: $34.85 – $49.10
- Dividend yield: 1.36%
Canadian Wheaton Precious Metals is one of the largest precious metal streaming companies worldwide. It currently boasts a diversified portfolio of 26 long-term streaming agreements with 19 different mining companies. The company predominantly operates in the gold, silver, palladium, and cobalt segments.
Management announced Q3 2021 results on Nov. 5. Revenue declined 12.5% YOY to $269 million. Adjusted net income fell 9.8% YOY to $137.1 million, or 30 cents per share, compared to a net income of $152 million in the prior-year quarter. Cash and equivalents ended the period at $372 million.
The company’s main attraction are its various streaming contracts that enable it to purchase gold at an average price of $451 an ounce through 2025. With gold prices consistently trending higher, the company is poised to generate solid earnings.
In Q3, the company had an average cash cost of $410 per ounce of gold. Given where precious metals prices were in the quarter, its cash operating margin was around $1,350 per ounce of gold. As a result, the company generated $200 million of operating cash flow.
Meanwhile, Wheaton has increased its dividend payments by 25% over the past year. WPM stock currently changes hangs around $44, up 11% over the past 12 months. Shares trade at 33 times forward earnings and almost 16.22 times current sales. The stock’s 12-month median price forecast is $53.85.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
