The rapid spread of the COVID-19 Delta variant has been worrying investors regarding its potential to slow the pace of economic recovery. However, investors’ interest in commodity stocks has been growing this year with the reopening of economic activities. This is evidenced by the Invesco DB Commodity Index Tracking Fund’s (DBC) 15% gains over the past six months.
Amid an inflationary environment, we think it could be wise to bet on quality commodity stocks as a hedging strategy. Furthermore, the $1 trillion infrastructure bill passed by the Senate on August 10, if passed into law, is expected to act as a catalyst for increased demand for several commodities.
Given this backdrop, it could be wise to bet on the shares of established commodities companies Rio Tinto Group (RIO), Glencore plc (GLNCY), Fortescue Metals Group Limited (FSUGY), and Vedanta Limited (VEDL). These stocks are currently trading below their recently hit price highs and are well-positioned to benefit from the increasing demand for commodities.
Rio Tinto Group (RIO)
London-based RIO explores for, mines, and processes mineral resources worldwide. The company’s key offerings are aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium. It owns and operates open pits, underground mines, mills, refineries, smelters, power stations, and research and service facilities.
On April 20, RIO signed a power purchasing agreement for a new renewable energy plant to power the operations of its QMM ilmenite mine in Fort Dauphin, Southern Madagascar. QMM President Ny Fanja Rakotomalala said, “This project is a strong example of our commitment with the Government of Madagascar to the sustainable development of the region.”
RIO’s consolidated sales increased 71% year-over-year to $33.08 billion for the half-year ended June 30, 2021. Its net earnings grew 271% year-over-year to $12.31 billion, while its underlying EBITDA increased 118% year-over-year to $21.04 billion. The company’s underlying EPS has increased 156% year-over-year to 751.90 cents.
Analysts expect RIO’s EPS and revenue to increase 113.6% and 50.7% year-over-year to $16.44 and $67.25 billion, respectively, in its fiscal year 2021. The stock has gained 26.7% over the past year to close yesterday’s trading session at $78.03. However, it is currently trading 17.6% below its 52-week high of $91.78.
RIO’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock has a B grade for Value, Stability, and Quality. Within the Industrial – Metals industry, it is ranked #3 of 38 stocks. Click here to see the additional POWR Ratings for RIO (Sentiment, Growth, and Momentum).
Glencore plc (GLNCY)
Headquartered in Baar, Switzerland, GLNCY produces, refines, processes, stores, transports, and markets metals, minerals, and energy products. It operates through two segments: Marketing Activities and Industrial Activities. It also engages in oil exploration/production, distribution, storage, and bunkering activities.
GLNCY announced on August 17, 2021, that it had entered a long-term strategic partnership to supply responsibly sourced cobalt with Britishvolt. David Brocas, the company’s Head Cobalt Trader, said, “Our commitment to support our partners in meeting their requirements for essential battery ingredients is key to underpinning long-term supply agreements.”
GLNCY’s revenue increased 79% year-over-year to $93.80 billion for its fiscal first half, ended June 30, 2021. Its adjusted EBITDA increased 79% year-over-year to $8.65 billion. Its net income came in at $1.28 billion compared to a $2.60 billion net loss in the prior-year period. The company’s EPS came in at $0.10 compared to a $0.20 loss per share in the year-ago period.
The company’s revenue is expected to increase 44.9% year-over-year to $206.26 billion in its fiscal year 2021. The stock has gained 110.9% over the past year to close yesterday’s trading session at $9.11. It is currently trading below its 52-week high of $9.49.
GLNCY’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. In addition, it has a B grade for Growth, Quality, and Stability.
Fortescue Metals Group Limited (FSUGY)
FSUGY explores for, develops, produces, processes, and sells iron ore, copper and gold deposits. It owns and operates the Chichester Hub in the Chichester ranges and Solomon Hub in Hamersley ranges of Pilbara, Western Australia. In addition, the company holds a portfolio of properties situated in Ecuador and Argentina, and it also provides port towage services. FSUGY is based in East Perth, Australia.
Fortescue Future Industries Pty Ltd, a wholly owned subsidiary of FSUGY, and Porto do Açu Operações S.A., a subsidiary of Prumo Logistica S.A., signed a Memorandum of Understanding (MOU) in February 2021 to assess the opportunity to develop hydrogen-based green industrial projects in Rio de Janeiro, Brazil. This joint venture project is expected to expand FSUGY’s market reach in Brazil and pave the way for future large-scale industries in the economy.
For the half-year ended December 31, 2020, FSUGY’s revenue increased 44% year-over-year to $9.34 billion. Its underlying EBITDA climbed 57% year-over-year to $6.64 billion. The company’s net profit after tax increased 66% year-over-year to $4.08 billion, while its EPS grew 66% year-over-year to 132.70 cents.
For its fiscal year 2021, the company’s revenue is expected to increase 73.2% year-over-year to $22.21 billion. Over the past nine months, the stock rallied 34.8% to close yesterday’s trading session at $32.08. It is currently trading 22.8% below its 52-week high of $39.40.
FSUGY’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. It has a B grade for Quality as well.
We have also graded FSUGY for Growth, Sentiment, Value, Momentum, and Stability. Click here to access all FSUGY’s ratings. FSUGY is ranked #5 in the Miners – Diversified industry.
Vedanta Limited (VEDL)
Based in India, VEDL is a diversified natural resources company that explores, develops, extracts, produces, processes, and sells oil and gas, zinc, lead, and metallurgical coke. In addition, it manufactures and supplies billets, TMT bars, wire rods, and ductile iron pipes.
On July 26, 2021, Sunil Duggal, VEDL’s CEO, said, “Our priority remains supporting our employees, partners, and communities to navigate through these tough times by providing every possible medical and other required assistance. We are focused on the key value drivers and lowering our carbon footprint to unlock sustainable future growth for the company and maximize value for stakeholders.”
VEDL’s revenue increased 79% year-over-year to ₹281.05 billion ($3.79 billion) for its fiscal first quarter ended June 30, 2021. Its EBITDA grew 150% year-over-year to ₹100.32 billion ($1.35 billion), while its PAT increased 247% year-over-year to ₹52.82 billion ($711.98 million). Also, its EPS came in at ₹11.40 ($0.15), up 140% year-over-year.
VEDL’s revenue is expected to increase 35.3% year-over-year to $3.80 billion for the quarter ending September 30, 2021. Over the past nine months, the stock rallied 198% to close yesterday’s trading session at $17.85. It is currently trading 0.9% below its 52-week high of $18.01.
It’s no surprise that VEDL has an overall B rating, which equates to Buy in our POWR Rating system. In addition, the stock has a B grade for Growth and Quality.
Click here to see VEDL’s ratings for Momentum, Value, Stability, and Sentiment as well. VEDL is ranked #7 in the Miners – Diversified industry.
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RIO shares were trading at $76.15 per share on Tuesday afternoon, down $1.88 (-2.41%). Year-to-date, RIO has gained 13.31%, versus a 19.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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