Shares exposed to copper could rise in 2021 and the opportunity to buy may be around the corner, analysts at Morgan Stanley said Monday.
Prices of copper HG00,
gathered at the end of last year and in 2021, reaching $ 3,696 per pound – their highest level since 2013, after falling to a four-year low in March 2020. Shares exposed to copper enjoyed recovery, but Morgan Stanley said there’s more to come.
Despite an average total return on shareholders of nearly 63% since the beginning of 2020, investment bank share analysts say they continue to see a positive return on risk for shares exposed to copper.
They cite a number of crosswinds, including an accelerating economic cycle and expected reflation, which “strongly favors copper”
“As such, we claim that there is another 30% up to current stock prices if commodity prices remain until 2021,” they said in a note.
Read: Here is what is expected for industrial metals after the 2020 rally for steel, iron ore and copper
The role of copper in the global shift to a lower-carbon economy was another reason to be positive. Its position as a key factor in the transition to decarbonisation and electrification offers a “convincing global growth angle as investors’ focus on climate change continues to grow,” analysts say.
“Against this background, we would use the potential market volatility around Chinese New Year next month as an opportunity to buy with the prospect of bullish 2Q21,” they added.
As for the best offers for 2021, Morgan Stanley prefers the giant for digging and trading goods Glencore GLEN,
extraction of base metals Lundin Mining LUN,
and mining and metal 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”.
Analysts estimate that using hypothetical fair values and earnings for 2021 based on spot prices, shares of Glencore were 67% up, Lundin 34% up and First Quantum 31% up. According to Morgan Stanley’s bull for honey at $ 4 a pound, those increases rose to 93%, 61% and 54%, respectively.
The FTSE 100 Glencore listed has an attractive commodity mix with exposure to base metals and a convincing valuation, they said, valuing the overweight stock with a price target of 274 pence. Lundin has “the most compelling story of a turnaround” and the potential to overcome it with an improved operational momentum that will continue in the first half of 2021, and a possible dividend increase around the corner. First Quantum will also benefit from “expanding the recovery of copper demand after COVID” and its proactive cash management.
Read: Commodity bull market? “This ship is sailing,” Curry tells Goldman
Glencore and Lundin are also trading at a significant discount, offering a valuation buffer, “if metal prices eventually recede,” they said, while First Quantum also has “enough room for valuation.”
Analysts say the risks to Antofagasta ANTO are growing,
and Boliden BOL,
– both evaluated with equal weight – before the upcoming profits. Antofagasta may be disappointed when it comes to cash spending and capital spending guidance in 2021 due to foreign exchange shifts and project reviews, while Boliden may increase its prospects for capital investment in projects and “crush special dividends.”