Analysts at Morgan Stanley said that copper-exposure shares could be set to rise in 2021 and the buying opportunity could be in the corner.
Copper prices HG00,
At the end of last year and in 2021, stalled at $ 3.696 a pound – their highest level since 2013, dropping to a four-year low in March 2020. Equity has enjoyed a recovery in copper exposure, but Morgan Stanley said there was still more to come.
Despite an average total shareholder return of around 63% since the beginning of 2020, equity analysts at the investment bank said they continue to see positive risk-reward for copper-exposed equities.
He cited a number of tailwinds, including an accelerated economic cycle and expected refinement, which is “a strong advocate for copper.”
One note stated, “As such, we argue that there is a 30% increase in current share prices. Commodity prices should remain in place by 2021.”
Read: Here’s what the industrial metals do after the 2020 rally of steel, iron ore and copper
Copper’s role in the global shift towards a low-carbon economy was another reason to be positive. Analysts said its position as a major promoter of the decolorization and electrification transition “elevates the angle of secular development as investors focus on climate change.”
“Against this backdrop, we will use potential market fluctuations around the Chinese New Year in the next month as a shopping opportunity with a 2Q21 outlook in view,” he said.
When it comes to the top selections for 2021, Morgan Stanley preferred the mining and commodities businesses, including Glencore GLEN etc.
Bas-metals Minor Lundin Mining LUN,
And mining and metals company First Quantum FM,
He said that despite the strong gains last year, they still saw lucrative opportunities because “the strong basic picture is sharply enhanced by macro drivers.”
According to analyst estimates using 2021 earnings based on hypothetical fair values and spot prices, Glencore’s stock was up 67%, Lundin up 34% up, and Quantum 31% upside earlier. In the bull case of Morgan Stanley, in the copper case of $ 4 per pound, they rose by 93%, 61% and 54% respectively.
The FTSE 100-listed Glencore has an attractive commodity mix with exposure to base metals and an attractive valuation, he said, giving the stock an overweight rating with a price target of 274 pence. Lundin has “the most compelling turnaround story” and to re-establish potential with improved operating speed and a potential dividend increase around the corner to continue in the first half of 2021. First Quantum would benefit from “comprehensive post-cod copper demand recovery” and its active cash management.
Read: Commodity Bull Market? “This ship has sailed,” says Curry of Goldman.
Glencore and Lundin also trade at significant discounts, offering a valuation buffer “that metal prices should eventually pull back,” he said, while the first Quantum has “substantial valuation headroom”.
Analysts said the risks for Antofagasta ANTO were increasing,
And Bolidan Bol,
– Both weighed equal – ahead of the earnings to come. Antofagasta may be disappointed when it comes to 2021 cash costs and capex guidance due to foreign exchange headwinds and project reviews, while Boliden could increase his capex outlook on projects and “reduce on special dividends.” “