Dette år bliver præget af råvarer. En række råvareselskaber har haft særdeles kraftige kursstigninger, som langt overgår aktiemarkederne generelt – stigninger på mellem 43 og 104 pct. bare i år, mens S&P 500-indekset er faldet med 12 pct. Saxo Bank har udvalgt fire sektorer og selskaber, som banken mener rummer værdier for investorerne: Lithium og SQM, kobber og BHP, guld og Barrick Gold, olie og Halliburton.
2022; The year of kingpin commodity stocks. Four stocks to watch and why
Summary: Markets have shifted, favouring what’s more important to economic growth i.e. commodities, are pivoting out of what will come under further duress as rates rise (tech). Kingpin commodities are in vogue and we see higher prices this year, and record results are ahead in oil, lithium, copper, as well as gold, and silver. We cover four commodity stocks to look at and why.
In our Quarterly Outlook last year, we sounded the alarm; higher commodity prices were ahead for; oil, coal, lithium, copper, grains, (wheat), and meat. Then the Ukraine war struck, adding to ailing supply concerns, causing de-globalization, pushing commodity prices to fresh records. This also revved up the push to be more carbon neutral, ushering in more ‘green-inflation’, .i.e. higher prices in green metals (from rising demand and inelastic supply).
Playing devil’s advocate, even if the war in Ukraine ended tomorrow, we think a community super cycle is still near, which will fuel even higher prices, creating more profits for investors, at a time when commodity companies are already boasting the highest cash flows (and free cash flows) in the market.
So what is also behind the forthcoming commodity super cycle?
Rising demand for; infrastructure (roads/rail, dams, housing, buildings, China building an undersea tunnel that’s twice the length of the tunnel between England and France, China building 5G stations/data centres etch), demand for food, heating/cooling, the push to carbon neutrality, and investors are also demanding ‘real’ assets.
So demand is hot, while commodity supply is anaemic; from weather constraints (hotter summers/ colder winters), regulation issues (from ethical/ESG constraints) preventing banks and companies from lending to miners/ drillers, to community protests halting mines from operating (i.e. Rio’s Serbian mine).
How is this affecting performance?
Commodities are having their best year since 2000. The Bloomberg Commodity Index, tracking 23 commodity futures prices (from energy, to materials, and agriculture) is now in record high territory, after rising 53% this year, and will likely hit higher levels in 2022 for reasons above. The technical indicator also support this too.
At a stock level, commodity stocks have become the best performers, in the US and Australia this year. Oil and gas, and crop nutrient companies are strongly outperforming markets. Oil companies like Occidental Petroleum (OXY) trade 104% higher this year, Halliburton (HAL) is up 60%. While Fertiliser companies like Mosaic (MOS) have gained 73%, CF Industries (CFF) is up 43%; all sharply outperforming the US benchmark S&P500 which is underwater, down 12% year to date.
Potential sectors and stocks to watch?
Lithium
Global lithium prices are likely to set new records this year. The Lithium Price Index (a measure of the lithium prices) is at its highest level in history, supporting lithium stocks share price growth. We believe the lithium price is likely to set higher prices this year, given the supply deficit, and rising demand from electric vehicle companies who are phasing out internal combustion engines (ICE or IC engines). Morgan Stanley is also of the same view too. Meanwhile, Morgan Stanley is bearish on the lithium price in 2023, seeing a return to surplus lithium next week. We think the lithium price could set higher levels not just this year, but over the longer term given the lack of supply, and higher the International Energy Agency (IEA) wants to ban fuel consumption engine sales by 2050.
Stock to watch? Sociedad Quimica y Minera de Chile (SQM)
SQM is one of the world’s leading lithium companies, while diversified in plant fertilizers too. 41% of its profit is from lithium. While it produces fertilizers and plant nutrients including potassium, and as well as other agricultural sector products where 57% of profits are from. Both lithium and fertilizers are growth markets. The lithium carbonate price is tipped to grow at 17% CAGR till 2026. Fertilizers are also tipped to see strong CAGR’s for the world to grow crops, and also sustain higher growth rates due to the behavioral shift toward eating vegan/vegetarian product. For more on fertilizers, click here.
Copper
Copper is not only needed in housing construction, but also in essential in the green transformation (for its used in electric cars). We think copper is the sleeping beauty commodity and will likely set higher prices in 2022, as restrictions ease in China and as global demand picks up, in this tight market.
Did you know the average electric vehicle needs;
- 83 kilograms of Copper
- 10 kilograms of lithium
- 45 kilograms of nickel
- 20 kilograms of manganese
- 14 kilograms of cobalt
- 70 kilograms of Graphite
- 250 kilograms of Aluminium
That’s a lot of industrials metals. BHP is an example of a company that makes revenue from many of these key elements, and more.
Stock to watch? BHP.
BHP, the world’s largest miner, can’t be ignored. The diversified business makes 58.1% from iron ore and the steel ingredient (iron ore) is in a continued long-term bullish rebound from its low, supported by expectations China will increase iron ore buying (to execute its infrastructure project boost so that China can achieve its 5.5% GPD target).
26.5% of BHP’s revenue is from Copper – and we think Copper is due for a run up, ahead of China’s lockdowns ending (the technical indicators also support this too). Plus don’t forget BHP also makes 8.7% of revenue from Coal and 6.7% from petroleum, (both are in uptrends) but these businesses are being sold off with so BHP can focus on being a greener companies. The funds from the sales of BHP’s coal and petrol assets will likely be returned to shareholder, via share buy backs – which again, supports share price growth. And lastly, BHP keep also makes money from industrial metals, essential to electric vehicles, nickel, alumimum, and manganese (yet BHP has not broken down how much it earns from these).
Gold
The gold price is up about 4% this year, which offsets the pull back in broad US stocks (The S&P500). Gold, makes a good addition to a portfolio to offset pullbacks in equities. Gold is likely to set higher levels, as yields rise. Historically we know gold has outperformed equities, every time the US fed rose interest rates (with a cycle of hikes). As our head of commodity strategy pointed out, from December last year, the gold price has mirrored the price rise of oil. This strength tells us about the level of risk in the system. In our recently published Quarterly Outlook we also highlight the reasons why we see gold moving higher and reaching a fresh record high later this year.
Stock to watch? Barrick Gold (GOLD)
Barrick Gold, is an international gold company; with projects in US, Canada, South America, Australia and Africa is arguably one of the most loved by analysts, yet little known gold stocks by retail investors. While many bullion producers stocks are on the nose, Barrick has performed better than most.
Oil
We see the oil price hitting new levels and possibly resting its all-time high later this year, given the continued disruptions from Russia, but also as we haven’t even seen covid19 restrictions ease in China. So Global oil will set higher levels since global mobility and travel resumes.
Stock to watch? Halliburton (HAL).
Halliburton is one of the best performers in the US stock market this year (HAL) is up 600%, and the street is very bullish on HAL for the year ahead. Halliburton is the biggest energy contractor (an engineering, construction and a manufacturer/seller of products in the energy sector). The company makes most of its money from America (41.7%), 25% from the Middle East, 17.8% from Europe/Africa, and 15.4% from Latin America. Halliburton was also the first major oilfield-service contractor to halt all work in Russia in response to Russia’s attack on Ukraine, so the company booked a $22 million write off from that as a result. But that has not put a dent in its outlook. The company’s entire fracking fleet is spoken for (sold out) and demand for drilling is expected to balloon. Halliburton expects oil drilling budgets to grow 35%, as oil companies are tipped to look for more oil, in riskier, costlier and deeper more time consuming areas than traditionally projects like Deepwater wells.
