The industrial metal industry has been attracting significant investor attention lately as COVID-19 cases continue to decline and industries gradually return to their pre-pandemic production levels. Investors’ interest in industrial metal stocks is evident in the Invesco DB Base Metals Fund’s (DBB) 10.9% returns over the past three months versus the SPDR S&P 500 ETF Trust’s (SPY) 4.4% gains.

Iron ore prices have plunged over the past few months as China reduced its steel production. However, the prospect of increased spending predicated on the Biden Administration’s proposed infrastructure bill is expected to drive the industrial metals industry’s growth. According to a Mining Global Market report, the global mining market is expected to reach $2,427.85 billion in 2025.

So, we think it could be wise to bet now on fundamentally sound industrial metal stocks BHP Group (BHP), Rio Tinto Group (RIO), and Nexa Resources S.A. (NEXA), which are trading below their 52-week highs now but have significant upside potential.

BHP Group (BHP)

Headquartered in Australia, BHP is in the natural resources business domestically and internationally. It operates through Petroleum; Copper; Iron Ore; and Coal segments. The company provides materials for essential infrastructure.

On October 14, 2021, BHP and POSCO (PKX) announced a collaborative arrangement to explore greenhouse gas emissions-reduction technologies in integrated steelmaking. BHP Chief Commercial Officer, Vandita Pant, said, “The pathway to net zero for steelmaking is not yet clear but we believe that, by working with industry leaders like POSCO, together we will find solutions more quickly to help reduce carbon emissions in steelmaking and along the value chain.”

BHP’s total petroleum production came in at 27,484 Mboe, up 3.1% year-over-year for the quarter ended September 30, 2021. Its total copper payable metal in concentrate came in at 256.9 kt, up 1.6% sequentially. Also, its payable zinc sales came in at 32,635 t, up 1.8% sequentially.

BHP’s revenue is expected to increase 2.6% year-over-year to $62.37 billion for its fiscal year ending June 30, 2022. Over the past year, the stock has gained 8.9% in price to close its last trading session at $55.93. It is currently trading 31.9% below its 52-week high of $82.07, which it hit on May 10, 2021.

BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

BHP has a B grade for Growth, Value, and Quality. Within the Industrial – Metals industry, it is ranked #5 of 36 stocks. Click here to see the additional POWR Ratings for Momentum, Sentiment, and Stability for BHP.

Click here to check out our Industrial Sector Report for 2021

Rio Tinto Group (RIO)

Headquartered in the United Kingdom, RIO explores for, mines, and processes mineral resources worldwide. The company offers aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium.

On October 17, 2021, RIO announced a new three-year partnership with Telethon to improve the health and wellbeing of children in Western Australia. The company’s Iron Ore Segment’s Chief Executive Simon Trott said, “Rio Tinto is delighted to be partnering with Telethon to help deliver critical research and initiatives that will improve the wellbeing of kids all across the state.”

RIO’s refined copper production came in at 50.5 thousand tonnes for the third quarter ended September 30, 2021, up 103.6% year-over-year. Its total mine production increased 20% sequentially to 1,110 ounces. Also, its share of total bauxite shipments increased 4.4% sequentially to 14,201 tonnes.

For fiscal year 2021, analysts expect RIO’s revenue to be $62.77 billion, representing a 40.7% year-over-year rise. The company’s EPS is expected to increase 99.5% year-over-year to $15.35 in fiscal 2021. Over the past nine months, the stock has gained 13.1% in price to close yesterday’s trading session at $65.54. It is currently trading 31.7% below its 52-week high of $95.97, which it hit on May 10, 2021.

RIO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has a B grade for Stability, Value, and Quality.

Click here to see RIO’s ratings for Growth, Momentum, and Sentiment as well. Again, RIO is ranked #6 in the Industrial – Metals industry.

Click here to check out our Industrial Sector Report for 2021

Nexa Resources S.A. (NEXA)

Based in Luxembourg City, NEXA, through its subsidiaries, engages in the zinc mining and smelting business. It also produces deposits of several minerals, including zinc, silver, gold, copper, and others. The company owns and operates five underground polymetallic mines.

On October 13, 2021, NEXA announced that it had received an operating license for its Aripuanã greenfield project on October 7, 2021. The permit was issued by the Environmental Secretariat of the state of Mato Grosso. This is expected to help the company expand its reach in Brazil.

NEXA’s net revenue increased 103.8% year-over-year to $686.19 million in its fiscal second quarter, ended June 30, 2021. Its gross profit came in at $221.44 million, up 969.1% from the previous period. And its operating income was $170.51 million, versus a $11.61 million loss in the year-ago period. Also, its EPS was $0.82, compared to a $0.42 loss per share in the previous period.

For its fiscal year 2021, NEXA’s revenue is expected to grow 30.4% year-over-year to $2.54 billion. Over the past year, the stock has gained 84% in price to close yesterday’s trading session at $10.67. It is currently trading 17% below its 52-week high of $12.86, which it hit on October 18, 2021.

NEXA’s strong fundamentals are reflected in its POWR ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Momentum and Sentiment, and a B grade for Growth, Value, and Quality.

NEXA is ranked #1 of 42 stocks in the Miners – Diversified industry. Click here to see the additional POWR Rating for NEXA (Stability).

BHP shares were trading at $56.26 per share on Friday afternoon, up $0.33 (+0.59%). Year-to-date, BHP has declined -3.45%, versus a 22.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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