Shares exposed to copper could rise in 2021 and there may be a buying opportunity around the corner, Morgan Stanley analysts said on Monday.
Copper prices HG00,
met at the end of last year and through 2021, with $ 3,696 a pound, its highest level since 2013, after falling to a four-year low in March 2020. Shares exposed to copper they have enjoyed the recovery, but Morgan Stanley said there was still more vine.
Despite the average total shareholder performance of nearly 63% since early 2020, investment bank equity analysts said they continue to see a positive risk reward for shares exposed to copper.
They cited several tailwinds, including an accelerated economic cycle and expected reflection, which “strongly favors copper.”
“As such, we argue that there is a 30% further rise in current stock prices if commodity prices persist until 2021,” they said in a note.
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The role of copper in global change towards a lower carbon economy was another reason to be positive. Its position as a key facilitator of the decarbonization and electrification transition offers a “compelling secular growth angle as investors’ focus on climate change continues to grow, ”analysts said.
“In this context, we would use the potential market volatility around the Chinese New Year over the next month as a buying opportunity with a bullish outlook for 2Q21 in sight,” they added.
When it comes to better options for 2021, Morgan Stanley preferred mining and commodity giant Glencore GLEN,
base metal miner Lundin Mining LUN,
and mining and metal company First Quantum FM,
They said that despite last year’s strong gains, they still saw attractive opportunities as “a tight fundamental picture is further driven by bullish macro drivers.”
According to analysts ’assessment that it used hypothetical fair values and gains for 2021 based on spot prices, Glencore shares were up 67%, Lundin 34% and First Quantum 31%. As in the case of Morgan Stanley’s $ 4 a pound copper, these advantages increased to 93%, 61% and 54%, respectively.
The Glencore, listed on FTSE 100, has an attractive commodity mix with exposure to base metals and a compelling valuation, they said, that ranked the shares overweight at a target price of 274 pence. Lundin has the “most compelling change history” and re-election potential with improved operational momentum that will continue during the first half of 2021 and a possible dividend rise around the corner. First Quantum would also benefit from “expanding the recovery of post-COVID copper demand” and its proactive cash management.
Read: Bulk commodity market? “This ship has sailed,” says Currie, of Goldman
Glencore and Lundin are also trading at a significant discount, offering a valuation buffer “if metal prices end up falling,” they said, while First Quantum also has “sufficient valuation margin.”
Analysts said the risks to Antofagasta ANTO were increasing,
and Boliden BOL,
– Both have gained equal weight – ahead of upcoming gains Antofagasta could disappoint when it comes to cash costs and 2021 capex guidance due to currency exchange districts and project revisions, while Boliden could rise his capex perspective on projects and “disappointing in special dividends.”