Copper and met coal miner Teck Resources is Thursday's IBD Stock Of The Day. Teck stock dropped modestly amid the broad market sell-off, neatly testing a very short-term line of support.
Shares of the Vancouver, British Columbia, Canada-based mining operation have gained a modest 48% over the last five years. But a 26-month rally lifted the stock more than 700% above its coronavirus pandemic lows. That rally ended in June, marking the start of a cup-with-handle base.
Teck shares traded 2% below that handle's 38.71 handle on Thursday, despite a 1.8% pullback that left shares perched a fraction above their 10-day moving average.
TECK stock is modestly above its 21-day moving average, with the 50-day line starting to catch up.
Teck Fundamentals
Teck derives almost half its revenue — $4.99 billion in 2021 — from production and sales of metallurgical coal, used on steelmaking. Met coal has higher prices and larger margins than thermal coal used in power generation. Another $2.75 billion, 26% of overall revenue, came from copper mining and sales. Zinc generated $2.44 billion, 22% of revenue.
Teck sees about 65% of its total revenue from the Asia/Pacific region. Another almost 23% comes from North and South America, with 11% derived from Europe.
A major driver for Teck stock has been met coal, for which the company reported an averaged price of $304 a metric ton in the third quarter, up from $237 a year ago and $102 in 2020. Copper prices, on the other hand, averaged $3.51, down from $4.25 a year ago, but still about 19% above 2020's third-quarter level.
Like most industries, miners have begun tightening belts in preparation for possible economic slowing. Tech shed its 21% interest in the Fort Hills Energy oil sands operation, selling it to Canada's Suncor Energy for $1 billion in cash.
Teck reported $2.64 billion Canadian, about $1.93 billion U.S., of cash and cash equivalents at the end of the quarter. That was an 85% jump from cash reserves of $1.43 Canadian, 41.04 billion U.S., at the start of the year.
Debt stood at $5.81 billion U.S., down from $6.36 billion at Dec. 31, 2021.
Teck Stock Technicals
Mining stocks in general have shown some year-end strength. The two-dozen-stock group is down about 11% for December, after rebounding almost 35% in the five months through November. Among the group's largest stocks by market capitalization, Australia-based BHP Billiton has a year-to-date gain of 20%. The U.K.'s Rio Tinto is up about 15%.
The overall industry has a relative strength of 80. The Relative Strength Rating for Teck stock is 92 and its RS line is trending higher. The Relative Strength Rating says the stock is rising faster than 92% of the stock's in IBD's stock universe. The relative strength line shows the stock's performance relative to the S&P 500.
Teck's six-month long base is 46% deep, deeper than the 33% that marks the rule-of-thumb maximum for healthy bases. Breakouts from deeper bases often succeed, but it is a trait that increases risk. The failure of Teck's previous breakout attempt, in June, marked the beginning of its current base pattern.
Investors also could view TECK stock as trading around a 37.73 buy point from a bottoming base within the larger consolidation.
