Investing in commodities always carries outsized risk. And the recent movement in copper prices is a perfect illustration of this risk. Nevertheless, this is a time when investors should be looking at copper stocks to buy.
The thesis for copper is that it will be an essential metal in the production of electric vehicles, solar panels, and other elements of our cleaner, greener economy. And that’s not currently reflected in the price of many copper stocks. Instead, they’ve been treated as risk-on assets, which means their prices have dropped along with their valuations.
However, according to a recent report by S&P Global, demand for copper will nearly double from 25 million metric tons (MMt) in 2021 to 49 MMt in 2035. The firm cites the clean energy transition as a large reason for this growth.
Investing in long-term trends requires patience. The markets aren’t going to tell you when the reversal in copper prices will happen. But if you believe that the transition to clean energy is real, then you can believe that copper is in the early stages of a long growth cycle. With that in mind, here are seven copper stocks to buy to prepare for this reversal.
|CPPMF||Copper Mountain Mining||$1.32|
|COPX||Global X Copper Miners ETF||$28.39|
Southern Copper (SCCO)
First on this list of copper stocks to buy is Southern Copper (NYSE:SCCO). Southern Copper is the world’s largest copper mining company with over $89 million in copper reserves.
One driver of this massive footprint is the company’s mining operations in Peru. The Peruvian market is actually very important to global production, as Peru holds approximately 13% of the world’s copper. Given the company’s extensive operations globally, Southern Copper has built a fine-tuned model which provides the lowest-cost production in the industry at approximately 80 cents per pound.
Southern Copper trades at an appealing P/E ratio of 12.70 and pays a dividend that has a yield as of Oct. 11 of 6.27%, which works out to an annualized payout of $3 per share. In calling SCCO stock one of the top precious metals stocks to own, I concluded that the company’s dividend makes Southern Copper attractive because you’ll get paid to be patient, no matter how long it takes for commodities to rebound.
Newmont (NYSE:NEM) is one of the largest miners in the world. The mining giant is largely known for being a gold miner, In fact, Newmont has over 96 million ounces of gold reserves. But the company is also become one of the world’s leading copper miners.
That’s significant because at this time, investors should be prioritizing quality when considering which stocks to hang onto for the long haul. And Newmont qualifies as such with a solid balance sheet that includes a total liquidity buffer of $7.3 billion.
Given the steep decline in commodity prices, it’s not surprising that NEM stock is down sharply from its 52-week (and all-time) high set in April 2022. That said, this environment is now making the stock look like an attractive value bet. This valuation, combined with Newmont’s dividend yield of 5.2% and annualized payout of $2.20, makes NEM stock a top copper stock to buy right now.
Freeport McMoRan (FCX)
Freeport McMoran (NYSE:FCX) makes this list of copper stocks to buy, as it is one of the leading copper miners in the world. That said, Freeport is another diverse mining operation. In addition to copper production, Freeport also engages in gold mining and is a major producer of the rare earth metal molybdenum which is a critical alloy for steel.
This gives the company several potential revenue streams, and the company clearly believes that copper is one of them. In fact, the company cited the S&P Global study mentioned in the introduction to this article in offering a bullish outlook for copper demand in the next 10 to 15 years.
Like many miners, Freeport McMoRan is currently caught in a push-pull scenario. On the one hand, public policy and private sector initiatives point to strong demand. On the other hand, the macroeconomic picture includes several headwinds. To begin with, inflation remains at elevated levels. This in turn is forcing interest rates to move higher. Accordingly, these factors in aggregate appears to point to weakening consumer demand.
That means that the short-term outlook for FCX stock is likely to remain muddled. The company’s mid- to long-term outlook, on the other hand, looks far more favorable.
BHP Group (BHP)
Next on this list of copper stocks to buy is one of the top Australian stocks in the market. Australia is known for its vast supply of natural resources. And BHP Group (NYSE:BHP) mines many of those resources, including nickel and potash.
Russia’s war with Ukraine makes the company’s access to potash a compelling reason to buy the stock. However, the focus of this article is copper. And the company plans to increase its capital expenditure to meet the global demand for copper. This makes BHP stock a compelling choice for investors looking to benefit from undervalued stocks that offer the benefit of international exposure.
Additionally, the company’s fundamentals suggest that it’s an undervalued choice as well. The company’s P/E ratio of 5.7-times is low, even in a sector where P/E values tend to average below 10-times earnings. Thus, while I wouldn’t count on the company maintaining a dividend yield of 13.93%, BHP stock currently offers a $6.97 per share annualized payout that income-oriented investors should not dismiss.
Turquoise Hill (TRQ)
Investors could just as easily put Rio Tinto (NYSE:RIO), the parent company of Turquoise Hill (NYSE:TRQ), on this list. Indeed, the former has given Turquoise Hill $2.3 billion in funding to complete its underground gold-copper mine at Oyu Tolgoi in Southern Mongolia. But in the interest of giving investors some alternatives, Turquoise Hill Resources is a mid-cap company with its own merits.
For starters, the company is projected to grow revenue and earnings at double-digit rates over the next five years. With many analysts are forecasting an earnings recession for many companies, this isn’t something to quickly dismiss. Investors may learn more about a potential earnings slowdown when the company reports earnings in early November.
In the meantime, the stock trades at a P/E of just over 10-times earnings. That makes it slightly overvalued to the sector, and investors don’t get a dividend with TRQ stock. Still, if the company’s forecasts for revenue and earnings come to fruition, this stock will look like a deep value pick at its current price.
Copper Mountain Mining (CPPMF)
The last single stock on this list of copper stocks to buy is the Copper Mountain Mining (OTCMKTS:CPPMF). As you can see by the over-the-counter designation, this is a penny stock, but one that may be worth considering as part of a broader precious metals portfolio.
CPPMF got a huge tailwind from the anticipated demand increase brought on by the Covid-19 pandemic. However, the stock fell in lock-step with the price of commodities starting in early April. In the last month, however, the stock is up 9%. And that gain is even larger when you consider that it was trading for 93 cents a share in late September.
The reason for the renewed optimism is due to the conclusions of a technical report that forecasts a larger amount of reserves than previous estimates and a longer life for its flagship mine. This in turn allowed the company to raise its production estimates. The company now believes it will produce approximately 138 million pounds of copper equivalent on an annual basis beginning in 2023. That’s a 38% increase from the current annual production run rater of approximately 100 million pounds.
Global X Copper Miners ETF (COPX)
Exchange-traded funds (ETFs) are a low-risk way for investors to get exposure to a particular sector. Accordingly, a great choice for gaining exposure to some of the best copper mining stocks (including many on this list) is through the Global X Copper Miners ETF (NYSEARCA:COPX).
This is the first ETF to give investors a pure-play option for investing in copper. The fund tracks a market-cap-weighted index that offers broad exposure to the entire industry. The methodology ranks companies by their average daily trading volume with respect to their corresponding exchanges over the past three months. If international exposure is important to you, it should be noted that the fund is heavily weighted to North American companies (about 40%), and is balanced semi-annually.
The ETF currently has about $1.40 billion of assets under management and an expense ratio of 0.65%.
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On the date of publication, Chris Markoch 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.