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Shares exposed to copper could rise in 2021 and a buying opportunity could emerge, Morgan Stanley analysts said Monday.
HG00 copper price,
rebounded late last year and into 2021, reaching $ 3.696 a pound – their highest level since 2013, after falling to four-year lows in March 2020. Copper-exposed stocks benefited from the rally , but Morgan Stanley said there was still more to come.
Despite average total shareholder returns of nearly 63% since the start of 2020, stock analysts at the investment bank said they continued to see positive risk-return for stocks exposed to copper.
They cited a number of favorable winds, including an acceleration in the business cycle and expected reflation, which “strongly favor copper.”
“As such, we argue that there would be another 30% to the rise in current stock prices if spot commodity prices persisted until 2021,” they said in a note.
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The role of copper in the global transition to a low carbon economy was another positive rationale. Its position as a key catalyst for the transition to decarbonization and electrification offers a “compelling secular growth angle as investor attention to climate change continues to grow,” analysts said.
“Against this background, we would use the potential volatility in the market around Chinese New Year over the next month as a buying opportunity with a bullish outlook in 2Q21,” they added.
When it comes to the top picks for 2021, Morgan Stanley preferred mining and commodity trading giant Glencore GLEN,
base metal miner Lundin Mining LUN,
and the mining and metallurgical company First Quantum FM,
They said that despite strong gains last year, they still saw attractive opportunities, as “a tight fundamental picture is further reinforced by bullish macroeconomic factors.
According to analysts’ assessment using hypothetical fair values and 2021 earnings based on spot prices, Glencore stock was up 67%, Lundin was up 34% and First Quantum was up 31%. As part of Morgan Stanley’s bullish case for the $ 4 a pound copper, those advantages reached 93%, 61% and 54%, respectively.
Glencore, listed on the FTSE 100, has an attractive commodity mix with base metal exposure and a compelling valuation, they said, noting the stock’s overweighting with a price target of 274 pence. Lundin has “the most compelling turnaround story” and revaluation potential with improved operational momentum expected to continue into the first half of 2021 and a possible rise in dividends around the corner. First Quantum would also benefit from “the widening recovery in post-COVID copper demand” and its proactive cash management.
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Glencore and Lundin are also trading at a significant discount, offering a valuation buffer “should metal prices ever fall,” they said, while First Quantum also has “sufficient leeway for valuation. “.
Analysts said the risks were increasing for Antofagasta ANTO,
and Boliden BOL,
– both valued on an equal weight basis – before future income. Antofagasta could disappoint with regard to the cost of cash and investment forecasts for 2021 due to currency headwinds and project reviews, while Boliden could raise its investment outlook on projects and “under-exploit special dividends ”.
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