Copper futures crossed the $4 mark on February 19, their price highest level since September 2011. This can be attributed primarily to rebounding industrial activity. Economic re-engagement in China is one of the key drivers behind the copper price rally; the country imports approximately 50% of global copper output.
With broad applications in the clean energy industry, copper’s rally is expected to continue in the coming months. Also, President Biden’s $2 trillion clean energy proposal is expected to be a major boost for copper prices. According to the International Copper Study Group, global copper output is expected to rise 4.5% year-over-year to approximately 21.80 million tonnes in fiscal 2021.
The demand for copper should push its price up significantly as the world focuses on the clean energy revolution in the second half of 2021, following the vaccination of a significant portion of the globe’s population. Moreover, with China and India ramping up their copper inventories amid recovering industrial and manufacturing production levels, we think BHP Group Limited (BHP) and Vale S.A. (VALE) should generate robust profits in the future.
BHP Group Limited (BHP)
Formerly known as BHP Billiton Plc, BHP is a global resources company. It is a producer of various commodities, including iron ore, metallurgical coal, copper and uranium. Its segments include Petroleum, Copper, Iron Ore and Coal. The company extracts and processes minerals, oil and gas from its production operations, which are located primarily in Australia and America. BHP manages product distribution through its global logistics chain, including freight and pipeline transportation.
BHP has signed a memorandum of understanding with JFE Steel, a leading Japanese steel producer, to jointly study technologies and pathways capable of making material reductions to greenhouse gas emissions from the steelmaking process. The company has also signed a renewable power purchasing agreement (PPA) with Risen Energy. The agreement is expected to help BHP reduce emissions from electricity use at its Nickel West Kwinana refinery by up to 50% by 2024, based on financial year 2020 levels.
For the half-year ended December 31, 2020, the company’s revenue increased 15% year-over-year to $25.64 billion. Revenue from its Copper segment has increased 26.2% year-over-year to $7.07 billion. The company reported$9.75 billion in profit from its operations, which represents an improvement of 17.3% year-over-year. BHP’s net operating cash flow of $9.37 billion and free cash flow of $5.16 billion is reflective of higher iron ore and copper prices and the company’s strong operational performance.
BHP’s consensus revenue estimate of $52.50 billion for the quarter ending June 2021 represents a 22.3% increase from the same period last year. The consensus EPS estimate of $3.80 for the quarter ending June 2022 represents a 32.3% increase year-over-year. Moreover, the company’s EPS is expected to increase at a rate of 5.3% per annum over the next five years.
The stock has gained nearly 48% over the past year and closed Friday’s trading session at $76.11.
BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong 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 has a B grade for Quality, Stability and Momentum. We have also graded BHP for Growth, Value, and Sentiment. Click here to access all of BHP’s ratings.
BHP is ranked #4 of 43 stocks in the Industrial – Metals industry.
Vale S.A. (VALE)
Headquartered in Rio de Janeiro, Brazil, VALE is a global producer of copper, metallurgical and thermal coal, potash, phosphates and other fertilizer nutrients, manganese ore, ferroalloys, platinum group metals, gold, silver and cobalt. The company operates primarily through three segments — Ferrous minerals, Coal and Base metals. VALE also markets platinum group metals.
The company completed a $6 million investment in Boston Electrometallurgical Company on February 9, 2021 for a minority stake and to promote the development of a technology focused on steel decarbonization. VALE resumed its production at its pelletizing plant in Vargem Grande, Nova Lima (MG) in January. Production there was halted in February 2019. VALE has also signed agreement with Mitsui & Co., that allows both parties to structure Mitsui’s exit from the Moatize coal mine and the Nacala Logistics Corridor, as a first step towards VALE’s divestment of the coal business.
Vale is expected to release its financial results for the fourth quarter (ended December 31, 2020) on February 25 after the market closes. VALE’s net operating revenue for the third quarter ended September 31, 2020 was $10.76 billion, representing an improvement of 43.1% sequentially. Its proforma adjusted EBITDA reached $6.22 billion, up 28.9% year-over-year. Its net income increased 75.8% year-over-year to $2.91 billion. VALE has generated $3.75 billion in free cash flow from operations, driven primarily by its strong EBITDA and small increase in working capital versus production and shipments acceleration.
A consensus EPS estimate of $0.85 for the quarter ending March 31, 2021 represents a 1114.3% improvement year-over-year. The consensus revenue estimate of $12.94 billion for the quarter ending March 31, 2021 represents an 84.8% rise from the same period last year.
The stock has gained 51.2% over the past year and closed Friday’s trading session at $18.22.
VALE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock also has a grade of B for Value, Growth, Quality and Momentum. We have also graded VALE for Sentiment and Stability. Click here to check all of VALE’s ratings.
VALE is ranked #7 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 were trading at $77.55 per share on Monday afternoon, up $1.44 (+1.89%). Year-to-date, BHP has gained 18.69%, versus a 3.52% 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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