After a tremendous super-cycle run just after the turn of the century, the top metals and mining stocks have been absolutely eviscerated over the past four years. In fact, if levels for most of the top stocks and commodities stay where they are today, this will be the fourth year in a row that mining underperforms global markets, the worst performance stretch since the mid-1990s.
A new research report from the global metals and mining team at Credit Suisse cites factors most investors in the stocks are painfully aware of: slowing growth in China and an overall lack of global demand. With valuations and expectations so low, the right stocks may bring big gains for patient investors.
Agnico Eagle Mines Ltd. (NYSE: AEM) completed the joint acquisition of Canada’s Osisko Mining and its Canadian Malartic mine this summer, which the company purchased together with Yamana Gold. The Osisko deal guided investors on both companies in recent months, so any positive news on the performance of the Malartic mine could have an immediate effect on valuation. The Credit Suisse team feels the sell-off after second-quarter results is way overdone, as potential at the new mine joint-venture could be significant.
Agnico Eagle investors are paid a 1.06% dividend. The Credit Suisse target price is $49. The Thomson/First Call estimate is $41.22. The stock closed Thursday at $30.17 a share.
Eldorado Gold Corp. (NYSE: EGO) is another of the top picks at Credit Suisse. The company engages in the exploration, development, mining and production of gold properties in Turkey, China, Greece, Brazil and Romania. The company also explores for iron, silver, lead, zinc and copper ores. The Credit Suisse analysts point out that the company is a consistent, low-cost operator with solid valuation upside to its net asset value. They also cite upside potential could be tied to pending permits in Greece and China.
Investors in Eldorado Gold are paid a small 0.25% dividend. Credit Suisse’s price target is $10, while the consensus is at $9.06. Shares closed Thursday at $7.03.
Goldcorp Inc. (NYSE: GG) is another stock rated Outperform that ranks high at Credit Suisse. The analysts feel that the company deserves a premium valuation to its peers due to its excellent balance sheet, growth profile with lower cost, new mines coming on line, longer average mine life and superior dividend yield. The company operates as a gold producer involved in the exploration, development and acquisition of metal properties in Canada, the United States, Mexico and Central and South America. Over the past few years Goldcorp has been altering its mine plans, cutting spending and disposing of assets in order to reduce costs and focus on the most profitable production.
Investors are paid a 2.5% dividend. Credit Suisse has a $33 price target, and the consensus target is $30.62. Goldcorp ended Thursday trading at $23.76.
Rio Tinto PLC (NYSE: RIO) is involved in the mining and production of aluminum products, including bauxite, alumina and aluminum; copper, gold, silver and molybdenum; diamonds, borates, salt and titanium dioxide feedstocks, as well as high-purity iron, metal powders, zircon, and rutile; thermal and coking coal and uranium; and iron ore. The stock has been extremely weak over the past two years due to falling iron ore prices, but at current levels the Credit Suisse team sees a value case with the company exiting its capital expenditure intensive iron ore growth phase and delivering significant low-cost volume growth.
Rio Tinto investors are paid an attractive 4% dividend. The Credit Suisse price target for the stock was not posted in American dollars. The consensus target is $65, and shares closed on Thursday at $50.61.
Southern Copper Corp. (NYSE: SCCO) is a company we have featured more than once in our weekend insider buying report recently. The chairman of the board has made gigantic purchases over the past two months. The Credit Suisse analysts see the company’s projects coming on at a competitive cash cost, which will maintain Southern as one of the world’s most profitable copper producers. It is also expected to become energy self-sufficient in Mexico, where energy accounts for about 35% of costs.
Investors are paid a 1.62% dividend. The Credit Suisse price target is $41, and the consensus is posted at $36.09. The stock closed on Thursday at $29.65.
Given the drastic underperformance, and the possibility that demand for base and precious metals expands, these are the kind of stocks with which long-term growth investors can tuck in a portfolio and wait for the turn.