We recently compiled a list of the 13 Best Commodity Stocks To Buy According to Analysts. In this article, we are going to take a look at where Teck Resources Limited (NYSE:TECK) stands against the other commodity stocks.
Two major trends that are shaping commodity markets are the rising interconnection of the market and the increasing importance of power in the energy transition, as per a report. The link between necessary commodities for the energy transition, such as LNG and metals, grew to 56% in 2022-23, up from 27% in 2015-19. With the introduction of more than 100 new tankers in the previous three years, the supply of LNG is rising dramatically. By 2028, it is anticipated that there will be more LNG carriers than oil carriers. Flexible contracts and increased competition between Europe and Asia are the main causes of this change.
Moreover, estimates suggest that power will play a larger part in the energy transition by 2040, contributing between $1.3 trillion and $2.4 trillion, expanding at a rate of up to 5% annually. Since renewable energy is predicted to account for the majority of the power mix between 2030 and 2050, significant investments in transmission networks, flexible power assets, and renewable energy sources will be required to meet net-zero targets. Up to 50% of the steel, copper, and aluminum needed for production will come from wind turbines alone.
Meanwhile, it is becoming more difficult to reduce inflation as global commodity prices level off, according to the World Bank's April 2024 Commodity Markets Outlook. The price decline from mid-2022 to mid-2023 was 40%, but it has since stabilized. However, since the middle of 2023, indices of commodities prices has largely not altered. The World Bank projects that global commodity prices will fall by 3% in 2024 and 4% in 2025, assuming that geopolitical tensions do not flare up again. Inflation will continue to rise above central bank targets despite this modest decline as per the report World Bank.
Oil prices are still high as the world economy is going down; Brent crude is expected to average $84 a barrel by 2024, as per the World Bank. Prices might rise above $100 in the event of global upheaval, providing investors in oil substantial profits. Secondly, due to geopolitical uncertainty and the robust demand from central banks in developing countries, gold is predicted to reach record highs in 2024. This confirms gold's reputation as a "safe haven" asset in times of market volatility.
Moreover, the demand for metals like copper and aluminum is being driven by investments in green technologies. Already at a two-year high, copper prices are predicted to grow by 5% in 2024, while aluminum prices are forecasted to rise by 2% due to rising demand for renewable energy infrastructure and electric vehicles.
On the other hand, a report from a large US bank stated that, in May, commodity prices reached all-time highs, driven by increases of 74% in only 1.5 months for U.S. natural gas, copper, gold, and cocoa. A retreat in June was brought on by profit-taking and worries about the U.S. economic slowdown. By year's end, Natasha Kaneva projects a 10% growth in the commodity market, citing weather-related supply chain disruptions and favorable fundamentals that might raise the price of gas, oil, and agricultural products. Energy transition commodities may see more gains from China's decarbonization initiatives, and gold prices may reach $2,600/oz by 2025 as a result of Fed rate cuts and central bank easing.
We sifted through holdings of commodity ETFs to form an initial list of 20 commodity stocks. Then we selected the 13 stocks that had the highest upside potential based on analysts' consensus. We have only included stocks in our list with an upside potential of 30% or higher. The stocks are ranked in ascending order of the upside potential.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A close up of an automated machine processing other Industrial Metals & Mining resources.
Upside Potential: 41.78%
Teck Resources Limited (NYSE:TECK) is a base metals miner that operates in Chile, Peru, the United States, and Canada for copper and zinc. Following the sale of its metallurgical coal division, copper now accounts for the majority of its EBITDA contribution, with zinc following. Teck ranks third among zinc miners. China is the largest customer of everything Teck Resources extracts from the ground, including copper, zinc, and lead.
The company's overall copper production is expected to expand by around 75% as a result of its significant new copper mine in Chile at the majority-owned Quebrada Blanca 2, which it operates together with Sumitomo. Rebalancing its portfolio to include low-carbon metals like copper is Teck's goal, along with several other copper growth prospects. Early in 2023, it sold its oil sands company, and in mid-2024, it sold its coal company.
It is significantly boosting its production of copper in order to capitalize on the growing demand brought about by trends like electrification and decarbonization.
Based on an all-time high in copper pricing and output, the mining company reported a strong second quarter of 2024 with a record $1.7 billion in Adjusted EBITDA. The company is shifting its focus to energy transition metals, specifically copper, after selling its steelmaking coal business strategically for US$7.3 billion. The sale proceeds will be utilized to reduce debt, encourage the growth of copper, and give shareholders a sizable cash return.
Teck Resources Limited (NYSE:TECK) was upgraded from Neutral to Buy by UBS analyst Myles Allsop, who raised the price target from C$76 to C$78. Following the consolidation of commodity prices, the analyst tells investors in a research note that the stock's risk/reward ratio has improved.
It is one of the Best Commodity Stocks To Buy since it has received a "strong buy" recommendation from 7 analysts. It has an average Wall Street analyst price target of $62.71, indicating an upside potential of 41.78% from the company's current price.
Overall TECK ranks 4th on our list of the best commodity stocks to buy according to analysts. While we acknowledge the potential of TECK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TECK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.