Recession talk hinders copper and steel prices, but that’s temporary.
The thing about industrial commodities is that they’re incredibly cyclical. Because they are used so widely in construction, automobiles and electronics, they do well when people are buying those items. In an economic downturn, the opposite is true. Worries that the Federal Reserve’s war on inflation will tank the economic recovery have caused both copper and steel stocks to fall in price in the short term. But in the long term, the pendulum will swing the other way, especially as both metals are crucial to the U.S. infrastructure revamp and the energy transition away from fossil fuels. Here’s a look at seven of the best copper and steel stocks.
Freeport-McMoRan Inc. (ticker: FCX)
This industrial-metals powerhouse is one of the largest copper miners in the world and is a major producer of molybdenum, which is used to alloy steel. So far this year through July 7, its shares are down about 30%, exceeding copper’s roughly 20% slide. In general, mining company share price declines can outpace those of the underlying commodity, as production costs don’t fall as fast, if at all. To combat this, mining companies can slow down production to spend less. Or they can increase production and try to make up the difference with sales volumes. They can also cut costs by reducing spending on exploration or acquisitions. For Freeport, a consensus of 15 analysts provided by research firm MarketBeat has the stock at a “hold” and a price target of $46, representing 60% in upside from where the stock closed July 7.
Glencore PLC (GLNCY)
Copper makes up a big chunk of Glencore’s revenue, and the Swiss company also produces the type of coal used in steelmaking, known as metallurgical or coking coal, and markets steelmaking ingredient iron ore sourced from third parties. It also provides financing and logistics services. Although the company in April lowered its copper production guidance for 2022, its marketing department was doing well amid commodities volatility. When Glencore next reports, investors may want to check if it changes production guidance again based on falling copper prices. But with all the selling in commodities, it seems likely its trading group may continue to do well. Its shares have outperformed the market, eking out a 3.4% gain year to date through July 7.
BHP Group Ltd. (BHP)
The largest miner in the world by stock market value, BHP is a major copper producer and sells metallurgical coal. But it’s iron ore that brings the company the most revenue of any single commodity it produces. Investors will need to watch the economic environment in China — the world’s biggest steelmaker and importer of iron ore — for an indication of what iron ore prices, and in turn BHP’s stock, might do. Unsurprisingly, given China’s COVID-19 restrictions and the current expectation for the global economy, iron ore prices have been trending lower over the past year. Still, as a large and diversified miner, BHP likely has the cushion needed to ride out a commodities slump. Its shares are down 10.3% so far this year through July 7.
Teck Resources Ltd. (TECK)
This Canadian copper and metallurgical coal producer is a “moderate buy” with a price target of $44.43, according to a consensus of 19 analysts provided by MarketBeat, representing nearly 60% in upside from where the stock closed July 7. Teck’s shares have performed relatively well, nearly breaking even in 2022 despite the S&P 500’s 20% drop. Prices for steelmaking coal — which in the first quarter drove a $1.6 billion gross profit increase for Teck and is the single-largest profit driver for the company — have dropped recently, but they’re still above where they were a year ago, unlike copper prices. It’s an example of how commodity diversification can serve a miner well when one of its products outperforms another. The company also produces zinc, which is used to galvanize steel. Zinc’s price is slightly above where it was a year ago.
Southern Copper Corp. (SCCO)
This Mexico- and Peru-focused miner says it has the largest copper reserves in the industry. To a much lesser extent than the red metal, it also produces molybdenum, zinc, silver and gold. With its focus on copper, it’s not surprising that its shares have dropped 17% this year through July 7. But it appears better able to weather the storm than some other miners because it has the backing of majority owner Grupo México (GMBXF), a conglomerate that has transportation and infrastructure businesses in addition to its mining division. And, perhaps more importantly, Southern produces copper at a relatively low cost. “The company’s low-cost position on the global copper cost curve ensures reasonable levels of cash flow generation during periods of lower prices,” Fitch Ratings said in December.
Steel Dynamics Inc. (STLD)
Turning to the only stock on this list that’s seen a meaningful gain year to date, Steel Dynamics’ shares have managed a 7.3% increase through July 7. Last month, the company issued record second-quarter earnings guidance. With that confidence, it stated that it had repurchased nearly $400 million of its shares during the quarter through June 10. “Despite softening hot roll coil steel pricing, broad steel demand remained solid during the second quarter, led by the automotive, construction and industrial sectors, with energy continuing to improve,” the company said. In addition to a segment that produces rolls of steel sheet as well as bar and rail products, the company’s fabrication segment makes structural steel for buildings, and its metals recycling segment collects and processes scrap.
Nucor Corp. (NUE)
Nucor, another steel manufacturing company that uses scrap as its primary raw material, also expects record quarterly earnings in the second quarter. Also like Steel Dynamics, Nucor has been buying back shares. “Second-quarter earnings will be driven by increased profitability in the steel products segment, which continues to benefit from robust demand in nonresidential construction markets,” the company said. “In addition, the steel mills segment earnings are expected to strengthen due primarily to increased profitability at our bar, sheet and plate mills.” Nucor also expects its raw materials segment to generate higher profits in the second quarter due to “relatively higher selling prices for raw materials.” So far this year, NUE shares are down 3.2% as of July 7.
7 best copper and steel stocks to buy today:
— Freeport-McMoRan Inc. (FCX)
— Glencore PLC (GLNCY)
— BHP Group Ltd. (BHP)
— Teck Resources Ltd. (TECK)
— Southern Copper Corp. (SCCO)
— Steel Dynamics Inc. (STLD)
— Nucor Corp. (NUE)
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Update 07/08/22: This story was published at an earlier date and has been updated with new information.