While the overall stock market has had a weak start to the year on concerns over multi-decade high inflation and the possibility of aggressive interest rate hikes by the Federal Reserve, mining stocks have displayed significant strength. Since the beginning of the year, prices of commodities have soared due to persistent supply disruptions amid rising demand, with economies trying to return to the pre-pandemic levels of production.
Amid a demand-supply mismatch, commodities prices are expected to remain strong in 2022. Moreover, the ongoing war between Ukraine and Russia may cause a supply shortage of crucial metals, further increasing prices. In addition, The Infrastructure Investment and Jobs Act focuses on improving the country’s creaking infrastructure and will increase the demand for steel, aluminum, copper, and other metals, thereby benefiting the mining industry.
Which is why today I’m going to analyze 3 prominent stocks within the mining industry: BHP Group (BHP), Vale (VALE), and Teck Resources (TECK). Each of these stocks has rallied significantly year-to-date but I believe have more room to run in 2022.
The Mining Industry
The mining industry is primarily involved in extracting precious metals, minerals, and other geological materials. These extracted materials are transformed and used in industrial, automotive, technology, machinery, building/construction, aerospace, defense, jewelry, and many other sectors. According to IBIS World, the market size of the U.S. mining industry is expected to grow 5.4% to $582.5 billion in 2022.
The COVID-19 outbreak severely affected the mining industry, as governments enforced shutdowns to contain the spread of the virus, and the demand for metals nosedived. However, metal demand made a strong comeback last year as economies reopened and industrial activities resumed. Investors’ growing interest in the metals and mining industry is evident from the SPDR S&P Metals & Mining ETF’s (XME) 55.2% returns over the past year.
The fiscal and monetary stimulus fueled the rebound in industrial and consumer demand. The economic recovery saw prices of mining products soaring to record highs. Prices of commodities like iron ore, copper, lithium, natural gas, and coal had all hit record highs.
The S&P Global Market Intelligence analysts expect mining exploration and development budgets to increase 5-15% this year because of high metal prices. Overall, mining stocks are poised to benefit amid this inflationary environment as their revenues are expected to rise with increasing commodity prices.
Performance of Major Industry Participants
Two major mining stocks, Rio Tinto Group (RIO) and Anglo American plc (NGLOY), have significantly outperformed the broader market by returning 18.3% and 27.6% year-to-date, respectively. Headquartered in London, the United Kingdom, RIO has a market capitalization of $133.54 billion, while London-based NGLOY has a market cap of $69.55 billion.
NGLOY’s CEO Mark Cutifani said, “We see a material opportunity for Anglo American to continue to set itself apart in terms of the performance of our diversified business, further enhanced through sector-leading 25% volume growth over the next four years, led by copper and the platinum group metals (PGMs).”
Best Mining Stocks to Buy Now
Considering the solid growth prospects of the industry and its inflation-hedge feature, we think it could be wise to bet on the following fundamentally-sound mining stocks:
BHP Group Limited (BHP)
Headquartered in Melbourne, Australia, BHP is a global resources company. It is a producer of various commodities, including copper and uranium, copper smelter, copper refinery, and precious metals. The company’s segments include Petroleum; Copper; Iron Ore; and Coal.
BHP’s revenue has grown at a 15.8% CAGR over the past three years. The company’s EBIT has grown at a 28% CAGR over the past three years.
Over the past six months, the stock has gained 43.8% to close the last trading session at $75.59.
BHP’s POWR Ratings reflect solid prospects. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B grade for Stability and Sentiment. It is ranked #2 out of 37 stocks in the Industrial – Metals industry. Click here to see the other ratings of BHP for Growth, Value, and Momentum.
Vale S.A. (VALE)
Headquartered in Rio de Janeiro, Brazil, VALE produces iron ore and iron ore pellets used in steelmaking. It also produces nickel, copper, metallurgical and thermal coal, potash, phosphates, and other fertilizer nutrients, manganese ore, ferroalloys, platinum group metals, gold, silver, and cobalt. It operates in the Ferrous Minerals; Coal; Base Metals; and Others segments.
In terms of trailing-12-month gross profit margin, VALE’s 60.05% is 97.3% higher than the 30.43% industry average, and its 61.64% trailing-12-month EBITDA margin is 185.7% higher than the 21.57% industry average. Furthermore, the stock’s ROCE, ROC, and ROA of 70.46%, 35.36%, and 24.29% are higher than the 12.86%, 7.51%, and 5.33% industry averages, respectively.
Over the past three months, the stock has gained 46.8% to close the last trading session at $19.97.
VALE’s POWR Ratings reflect solid prospects. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Value and Sentiment. Within the same industry, it is ranked #8. To see the other ratings of VALE for Growth, Momentum, and Stability, click here.
Teck Resources Limited (TECK)
Headquartered in Vancouver, Canada, TECK is engaged in exploring, acquiring, developing, and producing natural resources in Asia, Europe, and North America. It operates through Steelmaking Coal; Copper; Zinc; Energy; and Corporate segments. The company’s principal products include steelmaking coal, copper, gold, blended bitumen, lead, silver, molybdenum, zinc, and zinc concentrates. It also produces indium and germanium.
Analysts expect TECK’s EPS and revenue for the quarter ending June 30, 2022, to increase 298% and 117.8% year-over-year to $1.99 and $4.40 billion, respectively. Over the past year, the stock has gained 111.4% to close the last trading session at $39.90.
TECK’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Sentiment. Again, it is ranked #9 in the same industry. Click here to see the other ratings of TECK for Momentum, Stability, and Quality.
BHP shares were trading at $74.77 per share on Tuesday afternoon, down $0.82 (-1.08%). Year-to-date, BHP has gained 29.55%, versus a -3.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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