Citi analyst Ephrem Ravi is extremely bullish on global mining stocks, but he warns that investors will have to be cautious about harvesting returns from the profit resurgence in the sector.
Mr. Ravi’s 2021 earnings estimates for European-based miners are currently 27 per cent above consensus. He expects numerous increased profit estimates in the next 60 days as analysts recognize the strong upward trend in cash flow generation in the industry. He estimates that stock prices for the sector as a whole will rise more than 20 per cent before the end of 2022.
A recovering Chinese economy is the main driver of Citi’s optimism for commodity prices and mining stocks. The country consumes roughly half of production of most major non-energy resources thanks to a continuing, massive infrastructure and real estate build-out. Citi expects the Chinese economy to grow at an impressive 8.2 per cent in 2021.
Copper is Mr. Ravi’s top commodity pick for 2021, but, importantly, he believes copper-specific mining stocks are overvalued. Copper is currently trading at about US$7,800 per ton, but he believes related stocks are already priced for $8,500 per ton. Citi suggests large capitalization, diversified mining stocks like Anglo American, Arcelor Mittal, Glencore and Rio Tinto - where commodity prices have yet to be fully reflected in the stock price - as ‘compelling’ opportunities for investors.
Closer to home, Citi analyst Alexander Hacking rates Canada’s First Quantum Minerals Ltd as a buy, although he specifies the opportunity as high risk. Newmont Corp. and Nexa Resources S.A. are Mr. Hacking’s other buy-rated stocks. Citi chemicals and materials analyst P.J. Juvekar rates lithium producer Livent Corp. as a buy.
The copper price has jumped 68 per cent from the March lows and 22 per cent since the end of September. Mr. Ravi’s thesis, that other resource prices like aluminum and steel will play catch-up with the copper rally, is an interesting one and worth close examination as a search for new, lucrative investing options.
-- Scott Barlow, Globe and Mail market strategist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
DoorDash Inc. (DASH-N) and Airbnb Inc. (ABNB-Q) These two fast-growing but money-losing enterprises soared on their market debuts last week as investors collectively decided to bypass reality and head straight for Happy Town. The buying frenzy around the two companies echoes the tech-stock mania of the late 1990s. Once again, investors are willing to pay any price to own a piece of high-profile growth businesses. This time around, though, the buying binge seems to involve an even higher level of wishful thinking than it did 20 years ago. Ian McGugan reports. (for subscribers)
Stelco Holdings Inc. (STLC-T) Shares of the Canadian steelmaker have been surging amid the rising price of its main commodity, supply shortages and the so-called “recovery trade” as investors start focusing on life after the pandemic. Brenda Bouw takes a closer look at the stock and speaks to one fund manager who has been accumulating shares. (for subscribers)
MDF Commerce Inc. (MDF-T) This stock shot up by as much as 17 per cent on Monday after the e-commerce company disclosed a deal with a U.K. retailer Aldi to provide ‘click and collect’ grocery services amid the rise in contactless shopping during the pandemic. Analysts called it a nice win for the company formerly known as Mediagrif Interactive Technologies Inc. Brenda Bouw reports. (for subscribers)
Georgia Senate elections threaten pillar of market rally
Investors are looking ahead to dual U.S. Senate runoffs in Georgia early next month, a potential threat to a year-end rally that has pushed stocks to record highs in the midst of a country-wide surge of coronavirus cases. Lewis Krauskopf of Reuters reports. (for everyone)
Others (most for subscribers)
Monday’s Insider Report: CEO of this Canadian bank lands a $10-million payday
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
Ask Globe Investor
Question: I own shares of Crescent Point Energy Corp. (CPG) that have dropped more than 80 per cent since I bought them several years ago. I want to sell them for the capital loss, but I am concerned the shares could rise over the next 30 days before I repurchase them. Can I sell the CPG shares in my non-registered account and immediately buy them in my tax-free savings account to get around the 30-day restriction?
Answer: No. Nor can your spouse – or a corporation controlled by you or your spouse – purchase the shares before 30 days have passed without triggering a superficial loss. What’s more, because the 30-day prohibition on buying identical shares extends both forward and backward from the settlement date of your sale – for a total of 61 days, including the settlement date – you couldn’t buy CPG shares in your TFSA now (with the intention of holding them indefinitely) and then sell the shares you’ve been holding in your non-registered account a few days later. That would also be considered a superficial loss.
But here’s an idea: If you’re concerned that CPG could rise after you sell it, you could sell CPG and immediately buy a different oil and gas producer – or an exchange-traded fund such as the iShares S&P/TSX Capped Energy Index ETF (XEG) – so that you won’t be left behind if the energy sector rises. After 30 days have passed you could sell the substitute investment, repurchase your CPG shares and still get to claim the capital loss on CPG.
What’s up in the days ahead
Is Enbridge’s lofty dividend yield a worthy gamble as the company pushes through some of its operational and financial challenges? David Berman will share his thoughts.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff