Commodity prices have gone gangbusters this year, with the S&P Goldman Sachs Commodity Index soaring 39%.
So it’s no great surprise that during the first-quarter earnings season, Morningstar analysts made their biggest increases for stocks’ fair-value estimates in the basic materials and energy sectors.
In the basic materials sector, 26% of the 27 stocks covered by Morningstar analysts received fair-value increases of more than 10%. And in the energy sector, 25% of the 53 companies covered by Morningstar analysts garnered fair-value increases of more than 10%.
Among the basic materials stocks that received the highest fair-value increases are:
· Livent (LTHM), a lithium producer (40% increase in fair value estimate);
· Anglo American (NGLOY) , a mining company (24% fair value increase);
· Albemarle (ALB), a chemicals company (20% fair value increase); and
· CF Industries (CF), a fertilizer producer (15% fair value increase).
Among the energy stocks that received the highest fair-value increases are:
· Equinor (EQNR), a Norwegian oil producer (54% increase in fair value estimate);
· Liberty Energy (LBRT), which provides fracking services (25% fair value increase);
· Valero Energy (VLO), an oil refiner (25% fair value increase); and
· BP (BP), an oil producer (21% fair value increase).
Basic Materials Analysis
Demand for lithium is growing in the high double digits amid the surge in electric vehicle output. That benefits Livent and Albemarle, the world’s largest lithium producer, Morningstar said.
It raised its fair-value estimate for Livent to $35 per share from $25 and for Albemarle to $270 from $225. Livent recently traded at $30.20 and Albemarle at $255.07.
“Higher price forecasts for palladium, copper, and iron ore lifted fair value estimates for mining companies,” Morningstar said in a report. Anglo American’s fair value climbed to $21.40 from $17.30. It recently traded at $23.95.
Morningstar lifted its long-term forecast for nitrogen fertilizer prices to $320 per metric ton from $280 previously. And that led it to boost CF Industries’ fair value to $75 from $65. The stock recently traded at $96.13.
Energy Analysis
Equinor and BP are benefiting from surging oil prices. U.S. oil prices have climbed 52% year to date. Morningstar raised Equinor’s fair value to $40 from $26, and BP’s to $37.50 from $31. Equinor recently traded at $37.38 and BP at $32.67.
Morningstar raised its fair value estimate for Valero Energy to $101 from $93, based on an improved outlook for its refining margins. Valero recently traded at $128.12.
After Liberty posted its first quarterly operating profit in two years, Morningstar boosted its fair value to $15 from $12. The stock recently traded at $16.32.
