Copper-exposed stocks could rise in 2021 and a buying opportunity could be around the corner, Morgan Stanley analysts said Monday.
Copper prices HG00,
at the end of last year and in 2021, it reached $ 3,696 per pound – their highest level since 2013, after falling to four-year lows in March 2020. Shares exposed to copper enjoyed the recovery, but Morgan Stanley said there was more to come.
Despite the average total returns of shareholders since the beginning of 2020 of almost 63%, the investment bank’s equity analysts said they would still see a positive risk reward for copper-exposed stocks.
They cited a number of upwinds, including an accelerated economic cycle and expected reflection, which ‘strongly favored copper’.
“As such, we argue that current stock prices will rise a further 30% if commodity prices continue until 2021,” they said in a note.
Read: This is what lies ahead for industrial metals after the 2020 rally for steel, iron ore and copper
Copper’s role in the global move to a lower carbon economy was another reason to be positive. Its position as a key factor in the dewatering and electrification of a transition provides a ‘compelling secular growth angle, as investors’ focus on climate change continues to grow’, analysts said.
Against this background, next month we will use potential market volatility around the Chinese New Year as a buying opportunity with a bullish 2Q21 outlook in sight, ”they added.
In terms of top elections for 2021, Morgan Stanley prefers mining and trading giant Glencore GLEN,
base metal miner Lundin Mining LUN,
and mining and metals company First Quantum FM,
They said that despite strong gains last year, they still see attractive opportunities as a ‘tight fundamental picture is further enhanced by bullish macro drivers.’
According to analysts, based on the hypothetical fair value and earnings of 2021 based on spot prices, Glencore’s share was up 67%, Lundin’s 34% and First Quantum’s up 31%. In the case of Morgan Stanley for buyers of $ 4 per pound, these respects rose to 93%, 61% and 54% respectively.
The FTSE 100-listed Glencore has an attractive commodity mix with exposure to base metals and a compelling valuation, according to them, and rates the shares overweight with a price target of 274 pence. Lundin has the “most compelling reversal story” and the potential for improving operational momentum that will continue into the first half of 2021, and a possible dividend increase around the corner. First Quantum will also benefit from the “broadening of the demand for copper demand for COVID” and its proactive cash management.
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Glencore and Lundin are also trading at a substantial discount, offering a valuation buffer ‘should metal prices eventually pull back’, they said, while First Quantum also ‘has sufficient valuation space’.
According to analysts, there are risks for Antofagasta ANTO,
and Boliden BOL,
– both have the same weight – before the upcoming earnings. Antofagasta may disappoint when it comes to 2021 cash costs and capital guidance due to foreign exchange headwinds and project reviews, while Boliden may increase its capital outlook on projects and deliver a downturn on special dividends. ‘