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These Mining Stocks are Poised to Gain from Soaring Commodity Prices

It’s surprising to see commodity stocks hogging all the limelight as tech stocks that have dominated investor interest over the past decade. However, the Russia/Ukraine conflict has led to a surge in commodity prices due to supply concerns, bringing the spotlight back onto mining stocks.

For context, the S&P GSCI (commodity index) has risen about 11% this month alone and is up approximately 33% so far this year.

Despite the recent surge, Jefferies analyst Chris LaFemina expects a “stronger-for-longer commodity price environment and the high likelihood of rotation from other sectors into natural resources.”

In simple terms, LaFemina expects a “multi-year bull market in mining” amid increased supply risk as “greater geopolitical risk will delay a supply response to high prices.” Further, the analyst is upbeat about global economic expansion in the long term, which is another growth catalyst for commodity stocks. 

With a higher commodity pricing environment in the background, let’s look at two stocks poised to benefit from this situation. 

Alcoa  

Shares of aluminum producer Alcoa (NYSE:AA) are on a stellar bull run. Strong demand due to the economic recovery and higher realized prices for alumina and aluminum have led to a rally in its share price, which has increased over 180% in the past year. Further, it is up about 34% this year, significantly outperforming the market averages. 

Despite the exceptional price performance, LaFemina remains bullish on Alcoa and increased his price target to $90 (23.2% upside potential).

The analyst stated that the Russia/Ukraine crisis “could lead to a supply shock and cost-push inflation in aluminum and other commodities.” Further, his outlook for both aluminum and Alcoa remains positive regardless of the boost from the Russia/Ukraine conflict. 

LaFemina stated, “If geopolitical risks in Europe subside, aluminum prices would probably decline initially before rising again as the market deficit would likely persist.” 

The analyst highlighted that Alcoa is a green aluminum producer and is on track to become the “truly green aluminum producer” globally, which justifies its premium valuation. 

Along with LaFemina, most analysts are bullish on Alcoa stock. It sports a Strong Buy consensus rating based on 9 Buy and 3 Hold recommendations.

AA stock scores a 9 out of 10 from TipRanks’ Smart Score rating system, implying it will likely beat the market averages.

Glencore

Glencore (LSE:GLEN), one of the top coal, nickel, copper, and zinc producers, is among LaFemina’s top picks to capitalize on higher commodity prices. Economic expansion and higher average realized prices led to a significant increase in Glencore stock, which is up about 67% over the past year. Moreover, it has gained over 25% in 2022, handily outpacing the broader markets. 

Recently, the company announced its preliminary results for 2021, highlighting that record-high prices for its commodities led to a 118% jump in its industrial adjusted EBITDA.

Providing takeaways from his meeting with Glencore’s management, the analyst stated that he expects GLEN to “benefit from earnings growth in the near term and a valuation rerating as this cycle progresses.”  

He added that “coal prices might have peaked for the near term, but they are likely to remain elevated for the foreseeable future.”

LaFemina sees strong arbitrage opportunities in Glencore’s marketing business due to the market dislocations caused by the Russia/Ukraine crisis. He stated that the war has increased market dislocations that present “product quality, time, and geographic arbitrage opportunities.”

LaFemina has a Buy rating on GLEN stock and a price target of 600p (25% upside potential). Along with LaFemina, the rest of the Street is also bullish on GLEN stock, with 10 unanimous Buy recommendations for a Strong Buy consensus rating. Meanwhile, the average Glencore price target of 526p implies 9.5% upside potential to current levels.

Furthermore, Glencore stock scores a “Perfect 10” on TipRanks’ Smart Score system.

Conclusion

The supply concerns stemming from the Russia/Ukraine conflict are likely to support commodity prices. Meanwhile, it could take a significant amount of time to expand capacity elsewhere to meet demand, possibly creating a multi-year growth opportunity for commodity stocks.   

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