President Biden has been pushing the importance of U.S. infrastructure redevelopment since his campaign for president. He has vowed to spend approximately $1.3 trillion to rebuild the country’s infrastructure over 10 years. Biden is now taking steps to deliver on his promise and his administration is currently advancing an infrastructure bill in the U.S. Congress. According to a New York Times article, Biden plans on spending approximately $3 trillion on his “Build Back Better Recovery Plan,” which includes the infrastructure spending.
Iron ore has immense applications in infrastructure development. As such, the industrial metals sector is expected to grow in tandem with an infrastructure boom. Many companies in the industrial metals industry, especially iron ore, are likely to benefit from this because iron ore plays an important role in almost all manufacturing sectors, primarily in the manufacture of steel.
The global iron ore market is expected to grow at a CAGR of 3.2% over the next six years to hit $2.22 trillion by 2026. Thus, we think, iron ore manufacturers BHP Group Ltd. (BHP) and Vale S.A. (VALE) are likely to generate substantial returns in the upcoming months.
BHP Group Limited (BHP)
Headquartered in Melbourne, Australia BHP is engaged in the discovery, acquisition, development, and marketing of natural resources worldwide. The company operates through four segments — Petroleum, Copper, Iron Ore and Coal. BHP extracts and processes minerals, oil and gas from its production operations located primarily in Australia and the Americas and manages product distribution through its global logistics chain, including freight and pipeline transportation.
This month, BHP signed a two-year partnership agreement with Chinese automotive think tank, Automotive Data of China Co. to support its research on the future electrification of transport in China. BHP also signed a Memorandum of Understanding (MoU) with China’s HBIS Group Co. this month and with Japanese steel producer JFE Steel in February to study and explore greenhouse gas emissions reduction technologies and pathways.
For the half-year ended December 31, 2020, BHP’s revenue increased 15% year-over-year to $25.64 billion. Its revenue from the copper and iron ore segment increased 26.2% and 35.5%, respectively, on a year-over-year basis. The company’s profit from operations was $9.75 billion, which represents an improvement of 17.3% year-over-year. Furthermore , BHP’s net operating cash flow was $9.37 billion, up 25.9% year-over-year.
A consensus EPS estimate of $5.14 for its fiscal year 2021, ending June 30, 2021, represents a 43.33% increase year-over-year. A $53.76 billion consensus revenue estimate for the same period represents a 25.2% increase from the prior-year period. The stock has gained 112.8% over the past year and closed Friday’s trading session at $68.83.
BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
BHP also has a B grade for Quality, Stability, Sentiment, and Momentum. We have also graded BHP for Growth and Value. Click here to access all of BHP’s ratings.
BHP is ranked #6 of 42 stocks in the Industrial – Metals industry.
Vale S.A. (VALE)
Based in Rio de Janeiro, Brazil VALE produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking and is a producer of nickel also. It operates through three segments — Ferrous Minerals, Base Metals, and Coal. The Ferrous Minerals segment produces and extracts iron ore and pellets, manganese, ferroalloys, and other ferrous products, and provides related logistic services. VALE also offers platinum group metals.
This month, VALE announced that it had started operating a tailings filtration plant located at the Vargem Grande iron ore Complex, which represents the first of its four filtration plants to be operated in the company’s site in Minas Gerais. The company also announced this month that it has begun commissioning to increase wet processing production on the Timbopeba site, which is a part of the Mariana Complex. Moreover, VALE paid R$4.26 per share as a dividend on March 15.
The company’s net operating revenues increased 48.2% year-over-year to $14.77 billion for the fourth quarter ended December 31, 2020. Its revenues from Iron Ore under the Ferrous Minerals segment increased 66.9% year-over-year to $10.77 billion. VALE’s gross profit has increased 108.6% year-over-year to $9.04 billion. Its operating income was $1.80 billion, compared to an operating loss of $2.42 billion in the fourth quarter of 2019. Its net income also came in at $739 million versus a net loss of $1.56 billion in the prior year period.
Analysts expect VALE’s consensus EPS estimate for the current quarter, ending March 31, 2021 to improve 1185.7% year-over-year to $0.90. Its revenue is also expected to increase 78.9% year-over-year to $12.52 billion over the same period. The stock has gained 140.3% over the past year to close Friday’s trading session at $17.25. It has also gained 49.9% over the past six months.
It’s no surprise that VALE has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
Also, the stock has an A grade for Quality and a B grade for Growth, Value, and Momentum. Click here to see the additional POWR Ratings for VALE (Stability and Sentiment).
VALE is ranked #5 in the same industry.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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BHP shares rose $0.01 (+0.01%) in after-hours trading Monday. Year-to-date, BHP has gained 8.65%, versus a 5.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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