Copper has been crucial to human civilization for millennia and remains essential for modern technology and energy systems. Rapid industrialization and urbanization have driven up demand, particularly in manufacturing and construction. However, mining disruptions and limited supply could cause price spikes. Experts predict rising consumption and higher prices as the global green energy transition accelerates.
Therefore, to capitalize on this trend, investing in strong copper stocks that benefit from the green energy transition, such as Vale S.A. (VALE), Southern Copper Corporation (SCCO), and Rio Tinto Group (RIO), could yield substantial gains.
The transition to renewable energy and electric vehicles significantly boosts copper demand, essential for solar, wind, and EV technologies. Copper’s lower greenhouse gas emissions compared to alternatives make it a favorable choice in an increasingly sustainability-focused world. As global living standards rise, the demand for copper-intensive products and infrastructure further enhances its market outlook.
Historically, Q4 has been the strongest period for copper demand, with seasonal trends and speculative market positioning likely to drive prices higher. Favorable macroeconomic conditions, including expected rate cuts by the US Federal Reserve, further support the market. As a result, demand for copper is projected to grow at a CAGR of 2.6% through 2034.
Notably, copper consumption in energy transition sectors is expected to rise significantly, with a CAGR of 10.7%, including 14.3% for the EV sector, 5.6% for solar power, and 9.3% for wind applications. Considering these conducive trends, let’s analyze the fundamental aspects of the three Industrial - Metals picks, beginning with the third choice.
Stock #3: Vale S.A. (VALE)
Headquartered in Rio De Janeiro, Brazil, VALE and its subsidiaries produce and sell iron ore, iron ore pellets, nickel, and copper in Brazil and internationally. The company operates through the Iron Solutions and Energy Transition Materials segments.
On October 18, 2024, VALE and Petrobras signed a Strategic Alliance Agreement to supply decarbonization-focused products, including co-processed diesel with renewable content, natural gas, and a low-sulphur bunker blend. The partnership aims to advance competitiveness and sustainability in Brazil, with industrial testing of Diesel R5 already underway.
On September 4, 2024, VALE and Midrex signed a Technical Cooperation Agreement to advance the use of iron ore briquettes in direct reduction plants, aiming to decarbonize steelmaking. Initial tests showed promising results, and the partners plan to explore a joint venture for briquette technology and facilities.
In terms of the trailing-12-month gross profit margin, VALE’s 40.66% is 43% higher than the 28.44% industry average. Likewise, its 17.87% trailing-12-month levered FCF margin is 242.4% higher than the 5.22% industry average. Also, its 10.12% trailing-12-month Return on Total Assets is 337.3% higher than the 2.31% industry average.
VALE’s net operating revenue for the fiscal second quarter ended June 30, 2024, rose 2.6% year-over-year to $9.92 billion. Its operating income grew 34.7% over the prior-year quarter to $3.88 billion. For the same period, the company’s net income and EPS attributable to VALE’s shareholders were $2.77 billion and $0.65, up 198.4% and 225% year-over-year, respectively.
Analysts expect VALE’s EPS and revenue for the quarter ending March 31, 2025, to increase 11.4% and 1.8% year-over-year to $0.47 and $8.61 billion, respectively. Over the past month, VALE’s stock has gained marginally to close the last trading session at $10.63.
VALE’s promising outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B for Quality. Within the Industrial - Metals industry, it is ranked #9 out of 29 stocks. To see VALE’s ratings for Growth, Momentum, Stability, and Sentiment, click here.
Stock #2: Southern Copper Corporation (SCCO)
SCCO engages in mining, exploration, smelting, and refining of copper and other minerals in Peru, Mexico, Argentina, Ecuador, and Chile. The company is involved in the mining, milling, and flotation of copper ore to produce copper and molybdenum concentrates, as well as the production of refined silver, gold, and other materials, and the mining and processing of zinc, copper, molybdenum, silver, gold, and lead.
In terms of the trailing-12-month levered FCF margin, SCCO’s 21.95% is 320.6% higher than the 5.22% industry average. Similarly, its 52.99% trailing-12-month EBITDA margin is 219.3% higher than the industry average of 16.60%. Its 45.01% trailing-12-month EBIT margin is 312.2% higher than the industry average of 10.92%.
During the second quarter, which ended on June 30, 2024, SCCO’s sales grew 35.5% year-over-year to $3.12 billion. The company reported an operating income of $1.61 billion, representing a 78.5% growth over the prior-year quarter, while its net income per share grew 73.2% to $1.23. Additionally, the company’s adjusted EBITDA was $1.80 billion, up 61.1% year-over-year.
Street expects SCCO’s EPS and revenue for the quarter ended September 30, 2024, to increase 40.5% and 17.4% year-over-year to $1.11 and $2.94 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, SCCO’s stock has gained 61.3% to close the last trading session at $112.90.
SCCO’s POWR Ratings reflect its bright outlook. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Stability and Sentiment. It is ranked #5 in the same industry. To see SCCO’s Growth, Value, and Momentum ratings, click here.
Stock #1: Rio Tinto Group (RIO)
Headquartered in London, United Kingdom, RIO engages in exploring, mining, and processing mineral resources worldwide. The company operates through the Iron Ore, Aluminium, Copper, and Minerals segments.
On October 9, 2024, RIO announced its acquisition of Arcadium Lithium for $5.85 per share, valuing the company at approximately $6.70 billion. This strategic move aims to create a world-class lithium business, leveraging RIO’s scale and financial strength to enhance growth in the high-demand lithium market.
In terms of the trailing-12-month Return on Common Equity, RIO’s 20.11% is 247.8% higher than the 5.78% industry average. Its 12.73% trailing-12-month levered FCF margin is 143.9% higher than the 5.22% industry average. In addition, its 13.25% trailing-12-month Return on Total Capital is 168.5% higher than the 4.93% industry average.
For the six months ended June 30, 2024, RIO’s consolidated sales revenue increased marginally year-over-year to $26.80 billion. The company’s operating profit rose 14% from the prior-year value to $8.26 billion. In addition, profit after tax and EPS for the period stood at $5.89 billion and $3.56, up 19.1% and 13.3% year-over-year, respectively.
Over the past year, RIO’s stock has gained 4.7% to close the last trading session at $65.36.
RIO’s POWR Ratings reflect solid fundamentals. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked first in the Industrial – Metals industry. It has a B grade for Value, Stability, and Quality. Click here to access additional ratings for RIO’s Growth, Momentum, and Sentiment ratings.
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RIO shares fell $0.01 (-0.02%) in after-hours trading Monday. Year-to-date, RIO has declined -6.54%, versus a 23.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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